The futures market was trading in the green this morning ahead of the release of the Bureau of Labor Statistics’ Producer Price indices. This report showed that prices increased 0.5% in September (up 2.2% year over year). Core producer prices, which exclude volatile food, energy, and trade, were up 0.2% (up 2.8% year over year). These figures rose more than expected, showing an acceleration in price increases. The markets initially traded lower after this news broke, but quickly reversed course and moved higher, and remain well in the green, suggesting a strong start to the trading day. Elsewhere, shares of oil and gas giant Exxon Mobil (XOM) have declined in early trading after the company reached a deal to acquire Pioneer Resources (PXD) in an all-stock deal valued at about $59.5 billion in total consideration.
Later today, several developments may affect trading. These include the release of the latest Federal Open Market Committee (FOMC) meeting minutes, which will give some insight into the Federal Reserve’s interest rate decision-making process and allow traders to better understand whether the lead bank will further hike interest rates in the meetings ahead. A few Federal Reserve regional Presidents will give remarks on the economy later today. In government news, the U.S. House of Representatives is expected to vote to select a new Speaker of the House today. Two conservative candidates are considered the most likely contenders to emerge with the role, and given recent international risks and the potential for a government shutdown, we think that the outcome here will significantly impact U.S. fiscal policy.
The stock market rose yesterday as a decline in long-term bond yields helped to buoy stock prices and engender more risk taking. The markets advanced in the early portion of the session and then moved sideways through much of the day, ending not too far from their highs. Overall, the S&P 500 rose 23 points (up 0.52%), the NASDAQ increased 79 points (up 0.58%), and the Dow Jones Industrial Average gained 135 points (up 0.40%). Moreover, market breadth was rather strong, as advancers outpaced decliners by a 2.8-to-1.0 ratio. All eleven stock market sectors increased on the day, with utility stocks among the strongest performers. Energy issues were among the weakest on a relative basis.
In commodity news, oil prices declined yesterday, giving back some of the price gains achieved on Monday due in large part to the Hamas attack on Israel. Oil prices had risen significantly over the past few months, but fell alongside the stock market after showing signs of overbought conditions. Elsewhere, U.S. Treasury bond yields were mixed, with short-term rates rising and long-term yields falling. This flattening of the yield curve reverses a trend of recent weeks, and many investors have been moving into bonds due to increasing geopolitical risks and oversold bond conditions. The Chicago Board Options Exchange Volatility Index, or VIX, also commonly referred to as the fear index, fell yesterday as demand for options protection waned a bit.
Several economic reports will be released in the days ahead. These include the Bureau of Labor Statistics’ Core- and Non-Core Consumer Price indices and jobless claims on Thursday. On Friday, the Consumer Sentiment Index and Import Price Index will be released. Additionally, several Federal Reserve Regional Presidents will give remarks on the broader economy. Elsewhere, we will see the beginning of earnings season in the days ahead, with several dozen companies reporting quarterly results, including several large banking institutions and Dow-30 companies JPMorgan Chase (JPM), Walgreens Boots Alliance (WBA), and UnitedHealth Group (UNH). The banking reports will give some insight into how the consumer is faring and how rising interest rates and increases in long-term bond yields are affecting their loan portfolios. – John E. Siebert
At the time of this article’s writing, the author held positions in one or more of the companies mentioned.
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