Stock futures have been trading slightly in the green ahead of key economic and earnings data. The Producer Price Index fell 0.5% month over month in December, representing a much larger decline than the consensus expectation of down 0.1%. November figures were also revised lower. A separate report showed that the volume of retail sales was weaker, moving lower by 1.1%, though the figure, excluding automobiles, was down only 0.5%. The equity indices moved higher after these reports, suggesting a strong start to the trading day. The implied easing of inflationary pressures is viewed as a positive by the market, as it may presage moderation in the Federal Reserve’s monetary tightening program.
Later today, a few more economic reports will likely impact trading. These include the National Association of Home Builders Home Market Index and the U.S. Federal Reserve Beige Book (or Summary of Commentary on Current Economic Conditions). These should give some insight into future housing and economic conditions.
The stock market traded unevenly yesterday on the first day of trading following the 3-day Martin Luther King Jr. Holiday weekend. The Empire State Manufacturing Index came in at -32.9, which was much weaker than expected. Overall, the indices traded lower, as the S&P 500 finished 8 points down and the Dow Jones Industrial Average declined 391 points. However, the NASDAQ rose about 16 points, buoyed by improving prices for technology stocks.
Market breadth was positive yesterday, favoring advancers over decliners by a 1.2-to-1.0 ratio. Technology stocks were among the best performers, while materials stocks were among the weakest. The financial sector was dragged lower by underperformance in a few key names, such as Goldman Sachs (GS) and Travelers (TRV), which reported underwhelming fourth-quarter results.
In commodity news, oil prices rose yesterday as demand expectations continued to increase ahead of China's reopening economy. Elsewhere, U.S. Treasury bond yields were largely lower as traders moved into the safe-haven asset. An inversion remains in that market, as long-term rates are notably lower than short-term ones, which can signal a coming recession. The Chicago Board Options Exchange Volatility Index, or VIX, fell yesterday as demand for options protection declined.
Upcoming economic reports will guide trading in the days ahead. These include the Thursday releases of the Philadelphia Fed Manufacturing Index for December, initial and continuing jobless claims, and housing starts. On Friday, existing home sales for December will be released. Additionally, several Federal Reserve Regional Presidents will give remarks on the economy over the coming days. Elsewhere, earnings season should continue in earnest, with several dozen earnings reports slated for the coming days. These include large banks and a few energy companies. On the consumer side, Dow-30 component The Proctor & Gamble Company (PG) will report its results and outlook on Thursday. Investors will be looking toward these reports to see how companies are faring amid some economic weakness. - John E. Seibert III
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
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