The futures market is trading in the red ahead of the announcement of the Federal Reserve's monetary policy action later this afternoon. Traders have been pricing in the near surety of a 25-basis-point increase, representing a further slowing of interest-rate hikes after the Fed slowed from a 75-basis-point increase to 50 basis points late last year. Additionally, bank chairman Powell will give remarks, which most traders will be watching closely to see if they can gain any insight into monetary policy in the quarters ahead. A hawkish stance could be seen as a real negative for stock prices.
Elsewhere in the economy, several reports are expected after the opening bell, including the levels of job openings and quits and the Institute for Supply Management Manufacturing Index. Still, most eyes will be on the Fed.
Meantime, the Automatic Data Processing (ADP) payroll report was released. This showed job growth of 106,000 in January, missing estimates of 190,000, though a new methodology was instituted in August 2022. Larger businesses continued to hire, despite a few notable layoffs in the news over the past few weeks, while smaller companies let people go. Additionally, ADP indicated that job changers could increase their pay by 15.4%, a notable inflationary input. Though this report did not move the market much, we think the job market will be a key input into future Federal Reserve interest-rate policy.
The stock market traded strongly yesterday as a slew of positive earnings reports helped to improve the mood of buyers. However, several economic releases were weaker than expected, including the Standard and Poor's Case-Shiller home price index, which showed housing prices declined about 3.1% year over year in November. Additionally, the consumer confidence index fell in January to 107.1 from 109.0. Overall, the S&P 500 rose 59 points, the NASDAQ increased 191 points, and the Dow Jones Industrial Average finished up 369 points.
Moreover, market breadth was very strong, as advancers outpaced decliners by a 5.5-to-1.0 ratio. Around 94% of S&P 500 stocks were higher yesterday, as were all eleven stock market sectors. Consumer discretionary company stocks were among the best performers, and utilities were among the weakest, though only on a relative basis.
In commodity news, oil prices rose yesterday as traders bet on higher demand in China more than offsetting economic weakness in the United States. Elsewhere, U.S. Treasury bond yields were mixed, with short-term rates higher and longer-term ones lower. The two-year versus ten-year spread, a popular indicator within the investment community for its tendency to predict coming recessions, has a short-term rate higher than the long-term one by 70 basis points. The Chicago Board Options Exchange Volatility Index, or VIX, fell as traders demanded less options protection.
Plenty of economic reports will be released in the days ahead. These include jobless claims and factory orders for December on Thursday. Friday will mark the release of nonfarm payrolls, the labor force participation rate, the Standard & Poor's Services Purchasing Managers Index, and the Institute for Supply Management's Services Index. Elsewhere, hundreds of companies will release earnings in the days ahead, including Meta (META), after the bell today. These include several Dow-30 companies, such as Apple (AAPL), Honeywell (HON), and Merck & Co. (MRK). A few other notable names include large-cap stocks such as Amazon.com (AMZN) and Alphabet (GOOG) on Thursday, which along with Apple, make up a noteworthy portion of the NASDAQ. We think most eyes will be on these earnings reports and any fallout from the Federal Reserve's interest-rate policy release.
At the time of this article’s writing, the author had positions in one or more of the companies mentioned.
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