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Stock Futures Rise as Earnings Season Ramps Up

By Anna Hirtenstein 

U.S. stock futures climbed amid a slew of earnings releases and testimony by Janet Yellen in which she is expected to support higher coronavirus relief spending.

Futures tied to the S&P 500 rose 0.7%, pointing to gains after the opening bell. Those linked to the Nasdaq-100 also added 0.7%, suggesting a rally in tech stocks.

Earnings season kicked into high gear, with shares of Bank of America falling 1.4% in premarket trading after it reported a decline in quarterly profit of 22%. Goldman Sachs rose 2.2% after releasing earnings that significantly beat expectations.

Netflix is expected to report results after markets close.

Major banks' earnings suggest they are "seeing the economy stabilize; their worst-case scenarios haven't been met," said Shaniel Ramjee, a multiasset fund manager at Pictet Asset Management. "Even if the virus is still with us, banks are seeing an uplift in the economy."

The strong markets of recent months have also boosted some investment banks' trading revenues, which was reflected in Goldman Sachs's earnings, Mr. Ramjee added.

Ms. Yellen is scheduled to speak before the Senate Finance Committee at 10 a.m. ET, which will vote on her nomination for Treasury secretary. According to a copy of her prepared remarks, she will tell lawmakers that the U.S. risks a longer, more painful recession unless Congress approves more aid, and to encourage them to "act big" to shore up the recovery.

President-elect Joe Biden unveiled a plan for a $1.9 trillion fiscal stimulus package last week, which would include direct payments of $1,400 to most households and spending on vaccine distribution. Passing it through Congress is one of the first major tests for the incoming leader, who will be inaugurated Wednesday.

Ms. Yellen will be the "holder of the keys of unprecedented spending," said Ludovic Subran, chief economist at Allianz. "It will be reassuring for people to see she's very pragmatic in the way that she addresses the crisis, similarly to how she was in her role at the Fed."

Stock markets have begun the week on an optimistic note, as accelerated Covid-19 vaccine rollouts begin to offset concerns about the spread of the virus.

Portfolio managers are focusing on whether vaccines will be able to cope with the mutations of the virus, and what that implies for the possibility of future lockdowns, said Sebastien Galy, a macro strategist at Nordea Asset Management.

In premarket trading, shares of major tech companies edged up. Apple rose 1.5% and Facebook was up 1.9%. The Nasdaq Composite Index ended last week down 1.5%.

"There's a buy the dip mentality," said Mr. Galy. "Cynicism doesn't last long, it shows that equities can still rally significantly more."

Shares of laser maker Coherent surged over 32% on the news that Lumentum, a computer components firm, would buy it. Lumentum fell close to 10%.

Overseas, the pan-continental Stoxx Europe 600 was nearly flat, rising 0.1%. Jeep-owner Stellantis, the recently combined business of Fiat Chrysler and PSA Group, gained 4.4%, extending Monday's pop after it made its debut on French and Italian exchanges. The company's shares on the New York Stock Exchange will start trading Tuesday.

Meanwhile, investors are watching for the results of a vote of confidence in the Italian Senate, which will determine whether Prime Minister Giuseppe Conte is able to continue governing or not.

The muted reaction in Italy's government bonds shows the massive impact of European Central Bank stimulus and its ability to keep markets stable, Mr. Subran said. The yield on the Italian 10-year bond fell to 0.603% from 0.633% Monday.

"We tend to believe the coalition will reform, we still think it's something that can be saved. But it's also revealed the fragility of the coalition," said Mr. Subran.

In Asia, most major benchmarks rose. Hong Kong's Hang Seng Index advanced 2.7% and Japan's Nikkei 225 index added 1.4%, led by shares of tech and car companies. The Shanghai Composite Index slipped 0.8%.

In U.S. bond markets, the yield on the benchmark 10-year Treasury note rose to 1.112% from 1.097% Friday, with the market closed Monday for Martin Luther King Jr. Day.

Write to Anna Hirtenstein at anna.hirtenstein@wsj.com

 

(END) Dow Jones Newswires

January 19, 2021 09:27 ET (14:27 GMT)

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