The futures markets traded in the red following positive price action yesterday and ahead of the Automatic Data Processing (ADP) payroll report. This release showed that private payrolls increased by 113,000, which was lower than traders’ expectations, and these gains included around 45,000 new jobs in the health and education sectors. Stock futures rose slightly on this news, gaining back a portion of the earlier losses. Additionally, traders looked toward the release of the Treasury funding announcement, which stated plans to increase the size of bond sales in the coming month to manage the growing debt load. Debt sales have caused higher interest-rate and stock-price volatility over the past few months and could have an outsized effect on the market action going forward. Prior to the opening bell, the futures markets are mixed, suggesting a lackluster start to the trading day.
Later today, trading will be impacted by news from the Federal Open Market Committee (FOMC) meeting, with the Federal Reserve set to release its interest-rate policy decision. Though most traders are expecting current rates to be held steady at 5.25%-5.50%, market watchers will be looking toward the accompanying statement and press conference by Fed Chairman Powell to glean any information about future policy. Currently, traders are pricing in the potential for an interest-rate hike at the December FOMC meeting. Overall, we think the market action in the latter portion of the trading session will largely depend on how traders interpret this release.
The stock market followed Monday’s positive price momentum with another move upward. The U.S. Conference Board’s Consumer Confidence Index for October showed a slight weakening to 102.6, which notably beat analysts’ expectations. The indices trended higher throughout the day, helping to limit losses for October. All told, the S&P 500 rose 27 points (up 0.65%), the NASDAQ increased 62 points (up 0.48%), and the Dow Jones Industrial Average finished higher by 124 points (up 0.38%). Market breadth was rather positive, as advancers outpaced decliners by a 2.5-to-1.0 ratio. All eleven sectors of the stock market finished in the green yesterday, though REITs were among the best performers. On the other hand, energy equities were among the weakest, though only on a relative basis.
In commodity news, oil pricing was flat yesterday, following news that U.S. production hit an all-time high in August despite fewer rigs being in service. Still, oil pricing has declined in recent weeks due to increased geopolitical risks caused by the war in Israel. Elsewhere, U.S. Treasury bond yields mostly rose across the board. Short-term rates have increased at a faster pace when compared to those with longer durations in recent weeks, and the yield curve remains inverted, which usually portends a coming recession. The Chicago Board Options Exchange Volatility Index or VIX, commonly known as the fear index, declined rapidly yesterday as traders priced in less future volatility. Still, the VIX remains at much higher levels when compared to a month ago.
Several economic reports will be released in the days ahead. The list includes initial jobless claims and U.S. Productivity on Thursday. Moreover, U.S. nonfarm payrolls and hourly wages, the Institute for Supply Management’s Services Index, and the S&P U.S. Services Purchasing Managers’ Index will be released on Friday.
Additionally, earnings season is marching on, with several hundred reports on the docket in the days ahead, including Dow-30 component Apple (AAPL) after the close on Thursday. - 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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