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20.07.2023 02:28 PM
How slump in US stock market may start?

The US stock market reacted quite negatively to yesterday's and today's corporate reports, indicating that things are not as simple in companies as expected.

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High interest rates are exerting significant pressure on corporate profits. In addition, the Federal Reserve is not planning to lower them anytime soon. At most, interest rates will remain at the current levels. A series of negative forecasts for the third quarter are likely to lead to a substantial correction in the technology sector, initiating a downturn. Traders have long been discussing overbought conditions in the market. However, one should keep in mind that no matter how high assets may rise, it is just the beginning. The fact is that this autumn, inflation is likely to be capped, which will allow central banks to low interest rates.

Premarketing session

Shares of Netflix, a streaming giant, dropped by more than 6% after the quarterly results were published. The company stated that it was still too early to assess the impact of its strict measures. In the last quarter, Netflix reported earnings of $3.29 per share on revenue of $8.19 billion. Analysts had predicted earnings of $2.86 per share and revenue of $8.3 billion.

IBM's shares fell by 0.9% after a release of a mixed earnings report for the second quarter. The company's revenue amounted to $15.48 billion, which failed to meet the forecast of $15.58 billion. IBM reported adjusted earnings of $2.18 per share, which exceeded the forecast of $2.01 per share.

Tesla's shares dropped by 3.78% after there was no significant reaction to the income report for the second quarter. Although the company announced a record high quarterly income, the operating margin also declined to 9.6%, the lowest level in the last five quarters due to price reductions and incentives.

United Airlines' stocks surged by 2.5% during the premarketing session after the company announced that its second-quarter profits and revenue exceeded expectations despite flight disruptions at its hub airport in Newark, New Jersey. The company reported earnings of $5.03 per share on total revenue of $14.18 billion. Analysts had expected earnings of $4.03 per share and revenue of $13.91 billion. The company also provided a stronger-than-expected forecast for the third quarter. Shares rose by 1.4% following the news.

Shares of Las Vegas Sands, a property developer, fell by nearly 3% despite the report being somewhat decent. Las Vegas Sands reported adjusted earnings of 46 cents per share on revenue of $2.54 billion in the second quarter. Analysts had expected earnings of 43 cents per share on revenue of $2.39 billion.

Stocks of the digital banking powerhouse, Discover Financial, took a tumultuous tumble of 13% after its second-quarter results failed to meet analysts' expectations. Discover Financial boasted profits of $3.54 per share on revenue totaling $3.88 billion in the second quarter. Yet, the watchful eyes of analysts had anticipated earnings of $3.67 per share and revenue matching exactly $3.88 billion. The company suspended its share buyback program.

Speaking of the technical picture of the S&P 500, demand for the index remains strong. Buyers have a chance to continue the uptrend, but they need to firmly establish themselves above $4,582. A surge to $4,609 could potentially occur from this level. Equally important for bulls will be to maintain control above $4,637, which would strengthen the bullish market sentiment.

However, in the event of a downward movement due to a decrease in risk appetite, buyers should become active near $4,557. A breakout at this level would quickly push the trading instrument back to $4,539, allowing it to hit $4,515.

Jakub Novak,
Analytical expert of InstaForex
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