After a weak trading session yesterday, the futures market started unevenly, hovering around the neutral line. Dow-component Microsoft (MSFT) initially fell in the aftermarket hours after reporting second-quarter results, but the stock reversed course after Wall Street digested the figures and pulled the futures up with it. This trend continued throughout the morning hours, buoyed by the Microsoft report and several positive earnings reports today, suggesting a strong start to the trading session.
Yesterday was another volatile showing for stocks, with the major averages again bouncing off session lows. Still, at the close, all three major indices were in negative territory. The S&P 500 fell 54 points, the Dow Jones Industrial Average declined 67 points, and the NASDAQ Composite was off 316 points.
All eyes will be on the U.S. Federal Reserve later today as it announces the results of its Federal Open Market Committee meeting. Though traders do not think that an interest-rate hike is immediately likely, they will be on the lookout for any insight they can glean about the Fed’s future plans. The consensus is that the first rate hike will be in March, and the betting odds are almost 70% that the central bank will implement three or more interest rate hikes this calendar year. Today’s press conference, which will follow the release of the Fed statement at 2:00 P.M. (EST), should provide more clarity on how the Fed is thinking about monetary policy and if Wall Street’s assumptions are plausible.
Market breadth was somewhat negative yesterday, as decliners outpaced advancers by a 1.4-to-1.0 ratio. Energy stocks were among the best performers, aided by strong price performance in the related commodities. On the other hand, technology issues were again among the worst performers.
In commodity news, oil prices rose yesterday as traders predicted that international tensions in Ukraine could further global supply-demand imbalances should Russia cut supply to Europe. Meantime, U.S. Treasury bonds were a mixed bag, as short-term rates rose while long-term yields fell. This combination is usually negative for financial companies’ earnings, which borrow short and lend long. The VIX Volatility Index rose, reaching levels not seen since early last year, suggesting that traders are paying a premium for options protection against their positions.
Looking ahead, several economic reports will be released in the coming days. These include initial jobless claims and durable goods orders tomorrow. Then, on Friday, we will get data on personal income and spending and the final reading from the University of Michigan on consumer sentiment. Likewise, the earnings calendar is full, with several hundred companies reporting quarterly results over the coming days. These include six Dow-30 components, headlined by the releases from Apple (AAPL), McDonald’s (MCD), Visa (V), and Chevron (CVX).’
– John E. Seibert III
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
