The futures market started negatively after strong trading yesterday. The stock market rose considerably, as Russia announced that some units participating in military exercises around the Ukraine border would return to their bases and President Vladimir Putin stated he is ready for talks with NATO. This easing of tensions sent oil prices lower, and several market areas benefited from the assumed reduced risk of international conflict. Overall, these factors sent the indices higher, and the S&P 500 finished up 69 points, the Dow Jones Industrial Average rose 423 points, and the NASDAQ was higher by 349 points.
Still, the futures market remained lower through much of the night. It spiked a bit during the early portion of European trading hours but fell off a bit as time went on. By early morning, the futures market had retreated to its prior low level, but had started to make some headway higher as earnings data trickled in.
At 8:30 A.M. (EST), retail sales for January came in way above expectations, climbing 3.8% (3.3% excluding the auto component). The futures market responded positively to the report, but remained modestly in the red, and has since begun selling off again. Overall, this suggests a slightly weak start to the trading day. Note that the minutes from the Federal Reserve’s last monetary policy meeting will be released at 2:00 P.M. (EDT), which could have a significant impact on afternoon trading.
Market breadth was very strong yesterday, with advancers outpacing decliners by a 3.3-to-1.0 ratio. Technology stocks were the strongest performers, aided by an increase in risk-seeking appetite from traders. Meanwhile, energy issues were among the weakest, hurt by a decline in related commodities.
In commodity news, oil prices fell considerably as tensions between Ukraine and Russia eased some, at least for the moment. Traders are now pricing in a higher output level from Russia and lower odds of sanctions on and boycotts of their energy offerings. Meantime, U.S. Treasury bond yields were a mixed bag, with short-term rates rising and long-term durations falling. This is usually negative for financial companies’ earnings, which borrow short and lend long. The VIX Volatility index dropped considerably yesterday as demand for options protection fell. This suggests traders think that price volatility will recede in the coming period.
Looking ahead, several economic reports will be released in the coming days. These include housing starts on Thursday and leading economic indicators on Friday. Additionally, several regional Fed governors are slated to give remarks over the next two days, which should provide considerable insight into the Fed’s forthcoming decision-making process. Meantime, the earnings slate is quite full, with several companies on the docket after the bell today and tomorrow morning, reports from which will show how well operations are recovering from the coronavirus pandemic and supply shortages. All told, we think most eyes will be looking at the Fed regional leaders and their views on monetary policy.
– John E. Seibert III
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
