Before The Bell
Stock futures are pointing to a lower market open ahead of a session that could see more volatility due to the pending expiration of options and futures contracts. Investors may also be tempted to lock in profits and engage in tax-loss selling as yearend approaches.
Meanwhile, Thursday’s market action was marked by a large selloff in the technology sector. The tech-heavy NASDAQ fell a steep 385 points, or 2.5%, while the S&P 500 dropped 41 points and the Dow Jones Industrial Average retreated slightly, falling 30 points.
More expensively-priced tech stocks once again showed their sensitivity to higher interest rates or, in this case, prospects for such, as the Federal Reserve indicated a series of rate hikes is likely on the way beginning in 2022. Not helping matters for the tech sector was disappointing guidance from high-flyer Adobe Inc. (ADBE), suggesting that growth ahead may slow. Despite the recent pressure on tech shares, however, coming into Friday the NASDAQ Composite was up 30% per year on an annualized basis over the past three years.
On the plus side, Thursday’s economic news was broadly supportive. Initial weekly jobless claims remained very low, indicating employers are holding on to their workers. That augurs well for consumer spending ahead.
Housing market data was also favorable, with November housing starts and building permits coming in ahead of expectations. Elsewhere, data on industrial production and capacity utilization was at or near expectations.
Overall, a favorable business backdrop should provide market support, although volatility is to be expected following major run-ups, as occurred in many big-name technology stocks, especially given ongoing uncertainty related to COVID-19. There are no major economic releases scheduled for Friday.
Outside of technology, most stock market sectors advanced yesterday. Notably, the financial sector outperformed in view of prospects for higher interest rates. Banks are likely to benefit from improved lending margins as a result, assuming rates on loans increase. But banks also need the economy to remain strong to boost loan demand, and in that respect, Federal Reserve guidance for a gradual round of interest-rate hikes is aimed at preserving momentum in the economy while tamping down inflationary pressures.
Little movement in the bond market suggests the Fed may have time to address inflation. The yield on the benchmark 10-year Treasury note began this morning at a slim 1.42%, as some concerns remain about the potentially disruptive effects of the coronavirus. Yields would presumably be higher if inflation was viewed as more of a long-term problem. - Robert Mitkowski
At the time of this writing, the author did not have positions in any of the companies mentioned in this article.
