US stock index futures were lower during Sunday’s overnight trading after major averages hit their first negative week in four.
Futures contracts linked to the Dow Jones Industrial Average lost 169 points. S&P 500 futures and Nasdaq 100 futures both traded in negative territory as well.
The Dow and S&P fell 0.52% and 0.97% respectively last week. The Nasdaq Composite, meanwhile, was the relative underperformer, dropping 1.87% and having its worst week since May.
Fears of inflation weighed on stocks. A US consumer sentiment index released by the University of Michigan on Friday shows that consumers expect prices to rise 4.8% over the next year. This is the steepest rise since August 2008. Earlier this week, June’s consumer price index showed that inflation was up 5.4% year-on-year, shocking investors.
On the flip side, retail sales numbers released on Friday were better than expected, rising 0.6% in June, compared to an expected 0.4% decline.
“Inflation is still being driven by a relatively narrow range of goods and services affected by the pandemic,” UBS said in a recent statement. “We do not yet see inflation as an obstacle to further gains in the equity markets,” added the company. UBS recently raised its target price for the S&P 500 from June 2022 to 4,650.
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A busy week of profits is ahead, with nine Dow components to report and 76 S&P companies to provide quarterly updates. United Airlines and American Airlines will report as well as the social media companies Snap and Twitter. CSX, Johnson & Johnson, Coca-Cola, Honeywell, IBM, Intel and Netflix are also on the program.
The largest banks opened earnings season last week, and analysts at BMO found that 66 companies in the S&P 500 released a positive earnings forecast for the quarter ahead of earnings season, the largest since at least 2006.
“The Q2 earnings season is here and another stellar period is expected for US equities, with the S&P 500 Y / Y currently having an EPS growth rate of 65.5% which would be the strongest clip since Q4 ’09,” the company recently said notice to customers.
As for economic data, the National Association of Home Builders will be releasing its latest poll results on Monday, giving consumers a glimpse into sentiment in the real estate market. Economists surveyed by Dow Jones expect the value to be unchanged from the previous month at 81. Anything over 50 is considered a positive mood.
For July, the Nasdaq Composite fell 0.5%. However, the S&P 500 and Dow are in the green, rising 0.7% and 0.5% respectively. The Russell 2000 is down more than 6% due to weakness in small caps.
“The composition of the latest data suggests that inflation will largely prove to be temporary, as the Fed has stated,” said Ryan Detrick, LPL Financial’s chief market strategist. “How long will be ‘temporary’ is the big question. We’re in the middle of the season when we were expecting some hot prints, so this week wasn’t exactly a surprise.”
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