Stock futures lower with big tech earnings in focus; First Republic tumbles after bigger-than-expected Q1 deposit flight; Microsoft on deck with investors tracking AI progress, cloud growth; Google earnings to focus on AI plans, ad spend, cost cuts and General Electric cash flow forecast key to Q1 earnings report.
Five things you need to know before the market opens on Tuesday April 25:
1. — Stock Futures Lower With Big Tech Earnings In Focus
U.S. equity futures moved lower Tuesday heading into a busy session for corporate earnings, highlighted by updates from tech giant’s Google and Microsoft after the close of trading, and worries over the fate of regional banks following a disappointing report from First Republic.
Markets are likely to remain focused on earnings releases for direction this week as around 178 S&P 500 companies are slated to report March quarter profits, including a quartet of the country’s biggest tech stocks — Microsoft (MSFT) – Get Free Report, Google (GOOGL) – Get Free Report, Amazon (AMZN) – Get Free Report and Meta Platforms (META) – Get Free Report — over the the next three days.
Industrial bellwether’s General Electric (GE) – Get Free Report and Boeing (BA) – Get Free Report are also on tap for this week, as is Caterpillar (CAT) – Get Free Report, Honeywell (HON) – Get Free Report and energy giants Exxon Mobil (XOM) – Get Free Report and Chevron (CVX) – Get Free Report.
So far this earnings season, around 88 companies have reported, with 76.1% of them topping Street forecasts, a level that is just ahead of the prior four-quarter average of 76.5%, according to Refinitv data.
Investors had looked to last night’s March quarter update from First Republic (FRC) – Get Free Report, the bank at the epicenter of last month’s financial sector crisis, to possibly ignite a bullish near-term outlook, but a bigger-than-expected deposit outflow soured overnight sentiment.
Overnight in Asia, the region-side MSCI ex-Japan index was marked 1.11% lower heading into the close of trading, while European stocks fell 0.38% in Frankfurt amid an active earnings season, with prices also tracking U.S. equity futures.
Benchmark 10-year Treasury note yields were marked 10 basis points lower in overnight trading 3.445% while 2-year notes fell 4 basis points to 4.071% ahead of a $42 billion auction of new paper slated for 1:00 pm Eastern time.
The U.S. dollar index, which tracks the greenback against a baskets of its global peers, was marked 0.07% higher at 101.417 in safe-haven trading.
Heading into the start of the trading day on Wall Street, futures tied to the the S&P 500 are priced for a 22 point opening bell decline while those linked to the Dow Jones Industrial Average are set for a 150 point pullback. The tech-focused Nasdaq was marked 60 points lower.
The Richmond Fed will publish its regional manufacturing activity survey for the month of March at 10:00 am Eastern time, following on from weaker-than-expected readings in the Philadelphia and Dallas region. New home sales data for the month of March, as well as the Conference Board’s consumer confidence index, will also be released at 10:00 am Eastern time.
2. — First Republic Tumbles After Bigger-Than-Expected Q1 Deposit Flight
First Republic (FRC) – Get Free Report shares tumbled in pre-market trading after the lender and wealth manager posted better-than-expected first quarter earnings late Monday but noted a more than 40% decline in its overall deposit base while unveiling a fresh round of job cuts at the lender and wealth manager.
First Republic said earnings for the three months ending in March fell 57.5% from last year to $1.23 per share, but firmly topped analysts’ estimates of 85 cents per share. Group revenues, the bank said, fell 13.6% to $1.209 billion, again beating forecasts of a $1.15 billion tally.
Overall deposits, however, were down $71.9 billion from end-December levels, or 41% to $104.5 billion, well below Street forecasts of around $145 billion. The $104.5 billion total, as well, includes the collective $30 billion that was added to the bank’s deposit base by a collection of Wall Street lenders, lead by JPMorgan JPM, following the collapse of Silicon Valley Bank last month.
The bank added that it is “pursuing strategic options to expedite its progress while reinforcing its capital position” while planning job cuts that would eliminate around 20% to 25% of its overall workforce as it takes steps to “meaningfully reduce our expenses to align with our focus on reducing the size of the balance sheet,” according to CEO Mike Roffler.
First Republic shares were marked 20.8% lower in pre-market trading to indicate an opening bell price of $ 12.67 each.
3. — Microsoft On Deck With Investors Tracking AI Progress, Cloud Growth
Analysts expect a bottom line of $2.23 for Microsoft, a tally that is largely flat to last year, with revenue in the region of $51 billion.
The stock’s near-term moves, however, are likely to be powered by growth in its Azure cloud division, which slowed to 31% year-over-year in the prior quarter. Microsoft forecast March quarter revenue for its intelligent cloud division of between $21.7 billion and $22 billion, a tally that missed Wall Street estimates.
The group’s plans to embed a newer version of ChatGPT, a tool that uses human language to process instructions, in both its Edge internet browser and Bing search engine over the coming months will also be in focus as it challenges Google’s search market dominance.
Investors are betting that AI adoption will help Microsoft — which generated just $3.2 billion in search revenue last year — challenge the market dominance of Google, which churned around $43 billion.
Microsoft shares were marked 0.7% lower in pre-market trading to indicate an opening bell price of $279.79 each.
4. — Google Earnings To Focus on AI Plans, Ad Spend, Cost Cuts
Google is expected to post a bottom line of $1.07 a share, down 13% from last year, on revenues of $68.84 billion. The tech giant unveiled plans in January to cut around 12,000 jobs from its global workforce, adding the layoffs would likely cost between $1.9 billion and $2.3 billion in severance and related charges, most of which will be recognized over the current quarter. A further $500 million hit will come from optimizing its real estate footprint.
Google has been testing an array of new search products for several months — including the test launch of an AI-based tool called Bard last month — and is also focused on adding AI features that would support work-related products such as Gmail.
“While we do not expect concerns on traffic acquisition cost and AI competitiveness to be resolved on this call, valuation looks reasonable and more opex cuts are likely forthcoming,” said KeyBanc Capital Markets analyst Justin Patterson, who carries a $117 price target with an ‘overweight’ rating on the stock.
Google shares were marked 0.44% lower in pre-market trading to indicate an opening bell price of $105.50 each.
5. — General Electric Cash Flow Forecast Key To Q1 Earnings Report
Analysts expected General Electric to post an adjusted bottom line of 14 cents per share, down 41% from last year — thanks in part to the spin-off of GE Healthcare Technologies on January 4 — on revenues of $13.36 billion.
As ever, analysts will likely focus on both GE’s adjusted free cash flow forecast, which the company sees in the region of $3.4 billion to $4.2 billion, alongside its standing projection for earnings in the region of $1.60 to $1.80 per share and organic sales in the ‘mid-to-high’ teens in terms of percentage gain.
Investors will also look to progress related to GE’s plans to separate its energy business, which will be called GE Vernova, through a tax-free deal sometime in 2024. GE Healthcare will publish its own quarterly earnings later this month.
General Electric shares were marked 0.05% lower in pre-market trading to indicate an opening bell price of $100.11 each.