The U.S. stock market may attempt to rebound this morning, after the sizable selloff that took place yesterday. (At the time of this writing, the S&P 500 Index futures were ahead about 28 points in early morning trading.) Investors may be searching for direction at this juncture, as they evaluate some of their fundamental assumptions. Foremost, the economy continues to hold up well, and a deep and prolonged recession no longer seems likely at this time. Further, inflation remains problematic, as the recently released January CPI (Consumer Price index) report demonstrated. Finally, the Federal Reserve will probably not rush to reduce interest rates, and may not institute as many cuts as had been anticipated.
In the economic arena, no major reports are scheduled for today. However, a couple of Federal Reserve officials will be making presentations throughout the day, and again later this week. Investors will likely be paying close attention to these remarks, as they try to better understand the Federal Reserve’s path forward. Tomorrow will be a much busier day, with reports on retail sales and industrial production being the main highlights.
In the corporate sector, the fourth-quarter earnings season is not yet over. In fact, a few widely held companies are set to report their results this week. Today, we will hear from Cisco Systems (CSCO), a leader in networking technology. Tomorrow, we will receive reports from Applied Materials (AMAT), a semiconductor capital equipment manufacturer, and Deere & Co. (DE), a provider of agricultural machinery. Some positive results here may help lift sentiment.
Technically, the stock market has made significant progress over the past several months. Of note, the S&P 500 Index recently crossed the 5,000 mark, bringing applause from retail investors and the financial media. However, yesterday’s selloff showed that staying above the key 5,000 level may prove difficult. At this point, a period of consolidation may be in order, and could even be a healthy development. For one, a slight pullback might bring stocks back down to more appropriate valuations. In addition, traders would have a chance to rebalance their portfolios, and move capital into overlooked equity sectors. This would also help improve the market’s breadth. Up until now, a few mega cap technology issues have driven the market higher, and many investors would like to see broader participation. – Adam Rosner
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
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