The stock market futures traded in the green this morning, ahead of the release of the Producer Price Index data. This report showed that prices were unchanged in both variants of the PPI- the core- and non-core, the latter of which excludes volatile food and energy prices. On a 12-month basis, prices were up 0.9%, year over year, for producers or up 2.0% when excluding food and energy. This outcome showed that inflationary pressures are easing further at the producer level, and this should eventually lead to lower inflation at the consumer level. Overall, the markets saw this as a positive and are trading higher into the open, suggesting a strong start to the day.
Later today, trading will likely be impacted by the latest meeting of the Federal Open Market Committee (FOMC), which will release its decision on interest rate policy. Though most of the market expects no change in interest rates to occur, a very small contingent is betting on a 25-basis point hike. A larger contingent of traders will be looking to see what information can be gleaned about the future of interest rate policy. Many think a decline in interest rates could come as early as March of 2024, and some expect several interest rate reductions throughout next year. Value Line is not anticipating such a rapid turnaround. Traders will also examine the statements of at Federal Reserve Chairman Powell’s press conference to see what he will say about economic conditions and future interest rates. If investors sense a change in the Fed’s stance for 2024, we think this could have a significant impact on trading later today.
The stock market futures indices started trading lower yesterday, following a notable gain in prices on Monday. Stocks drifted higher after the Consumer Price Index report was released. This report showed that prices were 0.1% higher in November and up 3.1%, year over year, after being unchanged in October. Core prices rose 0.3% in November and were up 4.0% year over year. Overall, this positive momentum continued through much of the day, as traders believed that inflation was being contained. Overall, the S&P 500 rose 21 points (up 0.46%), the NASDAQ finished up 101 points (up 0.70%), and the Dow Jones Industrial Average increased 173 points (up 0.48%). Yet, market breadth was slightly negative, as decliners outpaced advancers by a 1.2-to-1.0 ratio. Financial stocks were among the best performers, while energy issues were among the weakest.
In commodity news, oil prices continued to fall yesterday, continuing a trend of lower highs and lows. Prices have retreated to below $70 per barrel, which is around the level that energy was trading at this past spring before war broke out in the Middle East. Elsewhere, U.S. Treasury bond yields were mixed, with short-term rates rising and long-term ones falling. The Chicago Board Options Exchange Volatility Index, or VIX, more commonly known as the fear index, declined as traders demanded less options protection; some skeptics regard a downward trend in the VIX, when stock prices are rising, as a potential indicator of a temporary “overbought” condition.
Several economic reports will be released in the coming days. These include Initial jobless claims and U.S. retail sales for November on Thursday, while the Empire State Manufacturing Survey and Industrial Production will be released on Friday. Elsewhere, a few dozen mostly smaller companies will report quarterly results in the days ahead. - John E. Seibert III
At the time of this article’s writing, the author did not hold any positions in the companies mentioned.
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