The futures market is in negative territory following a very strong week of trading last week. Market participants are awaiting the U.S. Federal Reserve's Open Market Committee (FOMC) meeting that starts tomorrow. The Federal Reserve is expected to hike interest rates by 0.75% on Wednesday to a range of 3.75%-4.00%, but most traders will be looking for further insight into future Fed decisions, in the announcement or in follow-up discussions. A segment of the investment community is betting that the Fed will soon pivot to a less-restrictive monetary policy. We expect trading will be somewhat subdued until the decision is released Wednesday afternoon.
Later today, the Institute for Supply Management's Chicago Purchasing Managers' Index will be released, giving traders some insight into how well the Midwestern U.S. Economy has been faring. Additionally, several companies will release earnings results, though many of the largest companies have already reported for the third calendar quarter.
The S&P 500 rose about 4% in the past week, bouncing off what we regard as an oversold condition, and investor sentiment has been improving concerning the broader economy. In many cases, earnings have also beaten low expectations, causing the indices to rise rapidly. Last Friday, the S&P 500 finished higher by 94 points, the NASDAQ was up 310 points, and the Dow Jones Industrial Average increased by 829 points. Additionally, the Dow Jones Industrial Average remains on track for one of the strongest months since 1976, should current conditions hold. Market breadth was strong on Friday as advancers outpaced decliners by a 3.2-to-1.0 ratio. Technology equities were among the best performers, while consumer discretionary stocks were among the weakest, though only on a relative basis. U.S. Treasury bond yields were higher for the range of maturities, ahead of an anticipated rise in interest rates after the FOMC meets this week. The Chicago Board Options Exchange Volatility Index, or VIX, fell on Friday as demand for options protection fell in tandem with the large increases in current stock prices.
Looking ahead, several economic reports will be released this week. These include Standard & Poor's U.S. Manufacturing Purchasing Managers Index and the Institute for Supply Management's Manufacturing Index on Tuesday, as well as job openings and quits. On Wednesday, the Automatic Data Processing (ADP) Employment report is on the docket, while initial jobless claims, Standard & Poor's Services Purchasing Managers' Services Index, and Institute for Supply Management's Services Index are all expected on Thursday. Nonfarm payrolls and the unemployment rate for October will be released on Friday. Additionally, several thousand companies will report quarterly performance and outlooks in the days ahead, including Dow-30 component Amgen (AMGN), on Thursday. Still, we think traders will keep their eyes on the Federal Reserve. - 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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