The US stock indexes are gradually recovering after yesterday's major sell-off in the technology sector, which occurred due to massive failures in software products of Facebook, Google and other services. Many investors took advantage of this moment and began to buy heavily discounted shares of technology companies. Futures on the Dow Jones Industrial Average grew by 101 pips, or 0.3%. S&P 500 futures rose by 0.3% and Nasdaq 100 futures climbed by 0.4%.
Facebook shares regained 1.5% on the premarket after falling by 5% on Monday due to the reason mentioned above. Amazon and Apple are also up slightly on the premarket after each company lost more than 2% during the trading session on Monday. Microsoft and Netflix are in strong demand. The Nasdaq Composite declined by 2.1% yesterday, the sixth consecutive fall in seven days. The Dow Jones Industrial Average blue-chips lost over 300 points, while the S&P 500 was down by 1.3%. Even last month, the technology sector showed its worst results, as a sharp drop in US bonds pushed up yields, forcing investors to reassess their portfolios. Rising rates could make their future returns less attractive. Yields are also climbing because the Fed, after a meeting in September, said it would soon begin reducing its monthly bond purchases, which could lead to an interest rate hike in the future.
According to economists, the sell-off in the stock market was caused partly by 10-year government bond yields rising, higher-than-expected inflation, and weaker demand. The fiscal stalemate in the US Congress over problems with raising the debt ceiling is also affecting investor sentiment. However, all these worries are expected to fade and then disappear. There is likely to be a rally in the stock market and it may return to its yearly highs by the end of the year. Last month, the S&P 500 fell by 4.8%, marking its worst month since March 2020 and breaking its seven-month run of gains. The yield on the 10-year Treasury note is down slightly, hovering at 1.49%, against its high estimated at 1.56% last week.
Policymakers in Washington are trying to agree on raising or suspending the US debt limit to prevent the first-ever default on the national debt. Last week, US Treasury Secretary Janet Yellen warned the Senate to solve this problem before October 18, when, according to the official authorities, the United States will run out of money. The US authorities will not permit a default on their obligations, so the outlook for the stock market remains quite good, especially after the weak September, as the economy continues to gain momentum and recover from the pandemic. Notably, JPMorgan is confident that the recent drop in the markets will not lead to more sustained risks, so they continue to open more long positions during the decline.
Let's turn our attention to the premarket and take a closer look at the most active companies:
PepsiCo beat economists' estimates by $0.06 per share with quarterly earnings of $1.79 per share. Company's revenues also exceeded forecasts. Its stock is already up by 1% on the premarket. PepsiCo also raised its annual revenue forecast as easing pandemic restrictions boost restaurant and movie theater sales.
Facebook shares showed a moderate rebound after falling nearly 5% on Monday. The drop came after a six-hour shutdown of all of the company's services.
Johnson & Johnson has filed an application with the Food and Drug Administration for emergency approval of the Covid-19 vaccine booster shot. The FDA has already scheduled an examination of these boosters for J&J and Moderna next week.
Tesla continues to impress. It will now have to pay about $137 million to its former employee Owen Diaz, who sued the company over a hostile work environment and persistent racist remarks. That was the ruling in San Francisco federal court, and the jury issued a higher compensation than the attorneys had asked for their client. However, the case had not affected the company's stock, which jumped by 1% on the premarket.
The technical analysis shows that the strong level of 4,288 continues to support the market and a lot depends on it now, as expected. If yesterday's problems in the technology sector are solved very quickly and the Senate manages to agree on the US debt limit, we may expect the S&P 500 to rebound to 4,394, and then to renew its high located at 4,478. If negative factors in the market prevail, a breakout of 4,288 may pave the way to the area between 4,231 and 4,155. The fall will be as fast as it was last week, so take care of your account balance.
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