The futures market in equities has wobbled this morning after a strong start. No headline economic news is expected today, although traders will look toward the Pending Home Sales Index for November from the National Association of Realtors to give insight into how well the housing market is performing.
The stock market traded unevenly yesterday, on the first day of trading after the three-day Christmas holiday weekend. Stocks have been benefiting from improved expectations for the economy, namely, some easing in inflation that could ultimately moderate the Federal Reserve’s tightening program in its monetary policy actions. The S&P Case Shiller Home Price Index for October was up 8.6% year over year, which was higher than expected, showing inflationary pressures in the housing market have been sticky despite rising interest rates. Airline stocks traded poorly as their operations were impacted by the severe winter storm that blanketed most of the country. Southwest Airlines (LUV) stock suffered the worst since it canceled thousands of flights through Thursday, perhaps raising questions about the resilience of its operating stance.
Overall, the S&P 500 index of stocks traded lower yesterday by 16 points or 0.4%, and the NASDAQ was off by 145 points or 1.3%. However, the Dow Jones Industrial Average performed slightly better, rising (by just 38 points) during the session. Moreover, market breadth was negative yesterday, as decliners outpaced advancers by a 1.3-to-1.0 ratio. Energy stocks were among the best performers, aided by a decent rise in the related commodities. On the other hand, consumer discretionary equities were among the weakest as traders moved out of the economically cyclical stocks, given that concerns about a 2023 recession remain widespread.
In commodity news, oil prices rose above $80 yesterday before dipping. The sentiment was boosted by greater demand expectations globally, especially in light of fewer coronavirus-related restrictions in China. Elsewhere, U.S. Treasury bond yields were a mixed bag, with short-term rates rising and long-term rates falling – accentuating the long-running “inversion” of rates, which usually portends a coming recession. The Chicago Board Options Exchange Volatility Index, or VIX, finished higher as demand for options protection increased along with uncertainty about the markets’ path in 2023.
A few economic reports will be released in the days ahead. These include the initial and continuing jobless claims on Thursday. On Friday, the Chicago Purchasing Managers Index will be reported. Additionally, several earnings reports will be released in the days ahead. Still, we think most eyes will be on the inflationary data. Some stocks may also be under pressure from last-minute selling by investors who want to record their losses for tax purposes in the current year. - 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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