The futures market in equities was well in the red shortly before the opening bell as St. Louis Regional Federal Reserve President James Bullard spoke. He stated that the Fed “has a lot of work to do before it brings things under control” and that Fed rate hikes have had “only limited effects” on inflation thus far. These comments caused sentiment to turn lower, as traders fear that the Fed will continue its restrictive course in its monetary policy. Additionally, a slew of new economic data have become available, including October housing starts (1.425 million) and home building permits (1.526 million). These figures came in around expectations, but were a step back from higher figures for September. Elsewhere, the Philadelphia Federal Reserve bank’s Manufacturing Index sank to a reading of negative 19.4, showing a notable decline in manufacturing around the Mid-Atlantic region and suggesting a considerable economic slowdown.
In yesterday’s trading, the markets slipped in the morning, hurt by a noteworthy decline in industrial production, which fell by 0.1% in October, against expectations for an increase of 0.1% in the period. Retail sales were reported up 1.3%, which was better than a month earlier, but not great given inflation trends. A few key companies also reported weaker-than-expected results, including retailer Target (TGT). That stock dropped by 13% through the day. When the trading session was over, the S&P 500 had fallen 33 points, the NASDAQ was off 175 points, and the Dow Jones Industrial Average was down just 39 points.
Utility stocks were among the best performers yesterday as a flight to safe-haven assets occurred. On the other hand, energy issues were among the weakest, hurt by a decline in the related commodities.
Oil prices fell yesterday. Fears about immediate widening of Russia’s war on Ukraine were unrealized, as news reports asserted that a missile that landed in NATO member Poland was not fired by Russian forces. Elsewhere, U.S. Treasury bond yields were largely higher throughout the day. Short-term yields remain much higher than long-term ones, and the spread between the 2- and 10-year yields reached its widest point in more than 40 years. This can be a predictor of a coming recession. The Chicago Board Options Exchange Volatility Index, or VIX, declined yesterday as demand for options protection waned a bit.
Several economic reports will be released on Friday. These include existing home sales and leading economic indicators. Additionally, the Boston Federal Reserve regional President, Susan Collins, will give remarks about the labor market. Traders will be looking to see what insights can be gleaned about future Federal Reserve interest rate policy from this talk. Elsewhere, several dozen corporations will report quarterly earnings after the close today and before the bell tomorrow. — 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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