Before The Bell
The futures market is indicating a bit of a pause after a strong day in the market yesterday. Stocks have rallied in recent days as traders focused on earnings reports from several companies, many of which showed continued improvements in their third-quarter results and raised guidance. This included solid results from Dow components Travelers (TRV) and Procter & Gamble (PG), though the latter stated it would need to enact price hikes due to higher input costs. Johnson & Johnson’s (JNJ) results were a bit more mixed, but profits beat expectations. The indices marched higher throughout the day on Tuesday, and the S&P 500 finished up 33 points, the NASDAQ closed higher 107 points, and the Dow Jones Industrial Average rose 199 points. Additionally, all three indices finished not too far from their all-time highs, and it would be a positive should the indices break those levels in the coming days. Despite an initial weak start to the futures session, the markets traded at around breakeven levels by midnight. The futures remained near those levels by the early morning, suggesting an uneven start to the trading day.
Moreover, market breadth was positive yesterday as advancers outpaced decliners by a 1.3-to-1.0 ratio. Healthcare stocks were among the best performers, while consumer discretionary was the only sector in the red.
In commodity news, oil prices rose yesterday as more traders bet on a mismatch between supply and demand. Meantime, U.S. Treasury bond yields rose yesterday as traders moved away from the safe-haven asset. Long-term interest rates rose more than short-term rates, showing a rising yield curve. This usually is a positive for financial company earnings, which borrow short and lend long. The VIX Volatility Index was lower, as demand for options protection fell a bit.
Looking ahead, several economic reports are due later in the week. These include the Philadelphia Fed Manufacturing Index, jobless claims, and existing home sales on Thursday. On Friday, the Market Manufacturing and Services PMIs are slated for release, which should show how well the economy is doing. Meantime, earnings season has kicked off in full this week, with several companies slated to report quarterly results over the coming days. This includes International Business Machines (IBM) after the closing bell today and 24 constituents of the S&P 500 both before and after the session. Overall, we think most eyes will be on the coming earnings reports, as traders see how well companies are faring in this inflationary environment.
– John E. Seibert III
At the time of this article’s writing, the author held positions in one or more of the companies mentioned.
