Equity futures are rallying after a weak performance in the stock market yesterday. This move has been aided by several retailers reporting better-than-expected earnings, including Best Buy (BBY), DICK’s Sporting Goods (DKS), and Abercrombie & Fitch (ANF). Additionally, U.S. Treasury bond yields were lower, thanks to comments made by Cleveland Fed President Loretta Mester after the bell yesterday. She stated that “We’re still going to raise the funds rate, but we’re at a reasonable point now where we can be very deliberate in setting monetary policy.” This implies a slowed pace of interest rate increases at future Federal Open Market Committee (FOMC) meetings. Overall, these developments suggest a stronger start to the trading day.
Several supply chain-related news stories caused investors to reduce their holdings yesterday. These included the renewal of coronavirus-related restrictions in Beijing, China, after three deaths were confirmed there. Elsewhere, the possibility of a U.S. rail strike increased after one of the largest rail unions voted down a potential labor agreement. The S&P 500 was down 15 points, the NASDAQ was off 122 points, and the Dow Jones Industrial Average declined 45 points. The Dow was somewhat buoyed by a strong performance in Disney (DIS) stock, which gained after the company’s board ousted chief executive Bob Chapek, d replacing him with former CEO Bob Iger.
Market breadth was slightly negative, as decliners outpaced advancers by a 1.2-to-1.0 ratio. Consumer staples stocks were among the best performers as traders moved into that more-defensive area. On the other hand, consumer discretionary issues, which will be more dependent on financing rates for big ticket items, and the state of the economy in general, were among the worst performers.
In commodity news, oil prices fell quickly in the early portion of the day as news broke that exporting consortium OPEC+ was considering a half-million-barrel per-day hike in production. However, prices quickly recovered as Saudi Arabian officials denied that report. Elsewhere, U.S. Treasury bond yields largely fell yesterday as a move into the safe-haven asset occurred. The Chicago Board Options Exchange Volatility Index, or VIX, fell as traders demanded less options protection.
Several economic reports will be released on Wednesday, though most eyes will be on the release of the Federal Open Market Committee's (FOMC) minutes from its November meeting. This should give insight into the committee's thought process concerning future interest rate hikes. Traders are currently pricing in a 50-basis point interest rate hike at the December FOMC meeting. Other notable reports include the S&P U.S. Purchasing Managers Indices, or PMI, for services and manufacturing, new home sales for October, initial and continuing jobless claims, and the University of Michigan's Consumer Sentiment Index for November. These reports usually are conveyed on Thursday or Friday but will be released early due to the Thanksgiving holiday. On the earnings front, several dozen companies will report in the days ahead, including several foreign corporations on Thursday and Friday. Still, we think all eyes will be on the Fed's minutes. - 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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