By Sruthi Shankar and Ankika Biswas
(Reuters) -U.S. stock index futures were flat on Monday as investors awaited more bank earnings and views from Federal Reserve policymakers that could shape expectations around when the central bank will pause its monetary policy tightening.
Wall Street closed lower on Friday after mixed economic data appeared to affirm another Fed interest rate hike in May, dampening investor enthusiasm after a series of big U.S. bank earnings launched the first-quarter reporting season.
While banking heavyweights including JP Morgan Chase & Co reaped windfalls from higher interest payments, focus will be on smaller banks that were at the center of the banking turmoil last month as well as forecast from companies amid worries of a recession.
“So far, numbers seen have been encouraging and have soothed fears around bank profitability. But things are going to get more difficult going forward,” Stuart Cole, chief macro economist at Equiti Capital, said.
“For regional banks, profitability will suffer as they are forced to focus on ensuring adequate liquidity rather than lending, while the larger banks are facing more difficult times ahead amid signs of a slowing economy.”
Other U.S. banks including Goldman Sachs Group Inc, Bank of America Corp, Morgan Stanley will report through the week, while financial company Charles Schwab Corp is reporting before the opening bell on Monday.
Analysts expect profits at S&P 500 companies to have declined 4.8% in the first quarter of 2023 from the year-earlier period, according to Refinitiv data, a slight improvement from last week’s forecast of a 5.2% decline.
The S&P 500 and the blue-chip Dow are trading near two-month highs, having recovered from March’s selloff on the banking crisis and fears about the Fed staying on a hawkish course for longer.
The U.S. central bank is widely seen raising rates by a quarter percentage point to the 5.00%-5.25% range next month, but recent economic data signaling a slowing U.S. economy have intensified debate over whether it will be the last in this cycle.
Traders’ bets of a 25-basis point hike in May have risen to nearly 90% from 78% last week, according to CME Group’s Fedwatch tool.
U.S. central bank officials including New York Fed President John Williams and Cleveland Fed President Loretta Mester are scheduled to speak later this week.
A report at 8:30 a.m. ET (1230 GMT) is expected to show business conditions in New York state improved in April after slumping in the previous month.
At 6:52 a.m. ET, Dow e-minis were up 18 points, or 0.05%, S&P 500 e-minis were up 3.25 points, or 0.08%, and Nasdaq 100 e-minis were up 1.5 points, or 0.01%.
Alphabet Inc dropped 3.3% among major growth stocks in premarket trading following a report that Samsung was considering replacing Google with Microsoft Corp’s Bing as the default search engine on its devices.
Prometheus Biosciences Inc rallied 69.9% after Merck & Co said it will buy the biotech company for about $10.8 billion.
Dell Technologies Inc slipped 2.1% as J.P.Morgan downgraded the PC maker’s stock to “neutral”, while HP Inc gained 2.3% after the brokerage upgraded its stock to “overweight”.
(Reporting by Sruthi Shankar and Ankika Biswas in Bengaluru; Editing by Shounak Dasgupta)