S&P 500 to Open Higher on Back of Rising Sentiment, Strong Bank of America Earnings

The benchmark U.S. S&P 500 Index is expected to open higher on Monday based on the strong gains in the futures market. Driving the price action are better-than-expected results from Bank of America. Investors aren’t sure what to expect from this earnings season due to the impact of decades-high inflation and rising interest rates on corporate profit.

At 12:50 GMT, S&P 500 futures are trading 3643.00, up 45.50 or +1.26%.

The U.S. stock market was also supported by more policy reversals from the U.K. government. New U.K. finance minister Jeremy Hunt announced that almost all planned tax cuts would be scrapped.

Third-Quarter Earnings Season Kicks Off

The third-quarter earnings season has kicked off, but companies could face severe scrutiny from investors as they look for evidence that red-hot inflation and rising interest rates are leading to significant downward revisions to their outlooks. Fear of recession could also cause companies to make adjustments to future earnings expectations.

Bank stocks are at the forefront today with Bank of America and the Bank of New York Mellon reporting ahead of the cash market opening. Today’s early bullish price action could be a delayed reaction to last week’s solid results from JPMorgan Chase and Wells Fargo. Morgan Stanley, however, disappointed.

Bank of America Earnings Beat Expectations

Shares of Bank of America are up over 2% ahead of the cash market opening on Monday after the banking giant posted quarterly results that beat analyst expectations.

The bank earned 81 cents per share on revenue of $24.61 billion. Analysts polled by Refinitiv expected a profit of 77 cents per share on revenue of $23.57 billion.

According to the report, Bank of America’s strong quarter was boosted by strong bond trading revenue and higher interest rates.

Sentiment Turns Positive after New UK Finance Minister Scraps Most Planned Tax Cuts

Stock market sentiment received a pre-opening boost after U.K. Finance Minister Jeremy Hunt on Monday announced that almost all proposed tax cuts in the country would be scrapped.

“A central responsibility for any government is to do what is necessary for economic stability,” Hunt said in a statement.

The news lifted the British Pound, but more importantly, it lifted investor sentiment that had taken a hit the previous week, weighing on demand for equities.

Economic News: Empire State Survey Falls to 9.1

Manufacturing activity in the New York State shrunk in October for the third straight month, a sign of persisting headwinds for the factory sector amid slowing demand, data from the Federal Reserve Bank of New York showed Monday.

The news had little effect on the stock market with most traders focused on earnings and improving investor sentiment.

Short-Term Outlook

U.S. stocks could get a lift for several days if earnings continue to come in better-than-expected. We feel that investors have fully-priced Fed rate hikes for November and December so any surprise will benefit the upside.

Furthermore, fear of a collapse in the U.K. gilt market has eased, giving investors the opportunity to buy a bargain basement prices after selling off sharply last week.