Stock market futures were positive ahead of the Producer Price Index (PPI) release. This report showed wholesale prices were up 0.4% month over month in September, which was much higher than expected. Prices increased 8.5% year over year. A notable portion of the rise came from the travel and service sectors. When excluding more volatile food and energy prices, wholesale prices were still up 0.3% month over month and 7.2% year over year. Equity futures fell following the release of the numbers to around breakeven levels, suggesting a bumpy start to the trading day.
Later today, several regional Federal Reserve presidents will give remarks on the economy. Additionally, the minutes of the Federal Open Market Committee will be released, which should provide further insight into the Fed’s thinking about interest-rate policy.
The stock market continued to decline yesterday, as fears about an economic recession and tighter monetary conditions dogged the market. The S&P 500 closed down 24 points, and the NASDAQ finished off 116 points. Still, the Dow Jones Industrial Average rose 36 points, aided by outperformance in Amgen Inc. (AMGN), which benefited from an analyst upgrade.
Market breadth was slightly negative yesterday, favoring decliners by a 1.3-to-1.0 ratio. Real Estate Investment Trusts (REITs) were among the best performers, aided by positive sentiment for mortgage-based REITs, which have been hit hard in recent months. On the other hand, communications stocks were among the weakest performers.
In commodity news, oil prices fell yesterday as fears about an economic slowdown continued. Elsewhere, U.S. Treasury bond yields were largely up across the board. The yield curve remains inverted, with short-term rates higher than long-term ones, which often portends an economic recession. Additionally, a majority of traders are pricing in a 75-basis point interest rate hike at the November Federal Reserve meeting. The Chicago Board Options Exchange Volatility Index, or VIX, was up yesterday as market participants were willing to pay more for options protection against future stock volatility.
Several economic reports will be released in the days ahead. These include the Thursday distribution of Core- and Non-core Consumer Price Indexes for September, showing how much retail prices have moved in the past month. This will likely be a key input to Federal Reserve interest-rate policy at its meeting in November. Additionally, the University of Michigan’s Consumer Sentiment Index for October will be released on Friday.
Upcoming corporate news will include dozens of company earnings reports in the days ahead, including several major banks and a few Dow components, such as JPMorgan Chase (JPM), Walgreens Boots Alliance (WBA), and UnitedHealth (UNH). Overall, we think most eyes will be on the Consumer Price Index (CPI) release and how it affects the future Federal Reserve interest-rate policy. - John E. Seibert III
At the time of this article's writing, the author held positions in one or more of the companies mentioned.
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