The futures markets started in the green this morning, following five days of declines and ahead of release of the weekly jobless claims information. This report showed that there were 230,000 new job losses, which was right in line with the market’s expectations. However, continuing claims rose to 1.67 million, a ten-month high, showing some continuing softness in the labor market. Traders believe that weakness in the labor market would allow the Federal Reserve to slow its increases in interest rates. Elsewhere in markets, oil prices have notably risen to around $75 per barrel, rebounding from an oversold condition. Overall, this positive price action in the market suggests a strong start to the trading day.
The markets fell early in yesterday’s trading session, continuing a downward trend. Traders have been reducing riskier stocks in their portfolios by selling ahead of the Federal Reserve’s Open Market Committee meeting next week, which will decide on interest rate policy. Most traders still think the Fed will slow its pace of interest rate hikes and have priced in a 50-basis point hike at the December 13-14 meeting, as inflation data have shown some signs of slowing down and job losses are starting to mount across the country. Overall, the NASDAQ fell 57 points yesterday, the S&P 500 was off 7 points, and the Dow Jones Industrial Average gained 2 points during the session.
Market breadth favored neither the advancers nor decliners by a notable amount, running about even over the course of the day. Healthcare stocks were among the best performers, while consumer discretionary issues were among the weakest. This combination suggests that traders are moving capital to less cyclical parts of the market.
In commodity news, oil prices faltered yesterday, dropping to around the $72-per-barrel level, though recovering strongly this morning. Commodity traders have been focused on efforts by the West to impose a price cap on Russian oil – which might raise prices in other corners of that market—but worries about a coming recession driving total usage lower would tend to reduce bids for future supplies of oil. Elsewhere, U.S. Treasury bond yields were slightly higher across the board. The yield curve is heavily inverted, with short-term rates much higher than long-term ones, which can portend a coming recession. The Chicago Board Options Exchange Volatility Index, or VIX, rose yesterday as demand for options protection increased.
Several economic reports will be released tomorrow. These include the Producer Price Index Final Demand and the University of Michigan’s Consumer Sentiment Index. These will represent some of the last economic data released before the Federal Reserve meets to discuss interest rate policy next week. Elsewhere, several dozen earnings reports will be released after the bell today and before the opening bell tomorrow. These include several notable retailers, including Lululemon Athletica (LULU) and Costco Wholesale Corp. (COST). Overall, we think most eyes will be on any inflation data in the days ahead. - 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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