The futures market climbed after the bell yesterday, following a notable rally in the trading session. Stocks rose early in the session, buoyed by several large companies posting strong bottom-line results and issuing good outlooks for the coming quarters. The indices continued higher throughout the day and finished not too far from their intra-day highs. All told, the S&P 500 rose 38 points, the Dow Jones Industrial Average 372 points, and the NASDAQ 179 points. The futures market continued its move higher through the night before reaching an overbought position and retreating some in the early portion of European trading. However, the advance resumed this morning, as several more large-cap companies released their quarterly results. This strong price action suggests a good start to the trading day stateside.
Market breadth was rather positive yesterday, as advancers outpaced decliners by a 1.5-to-1.10 ratio. Materials stocks were among the best performers, while energy issuers were among the weakest, hurt by a notable declines in the related commodities.
Speaking of commodities, oil prices fell yesterday as traders bet that more supply would come onto the market. The U.S. has resumed indirect talks with Iran on a resumption of the nuclear deal, which could ultimately allow for more foreign oil to reach the open market. Elsewhere, U.S. Treasury bond yields were mixed, with short-term rates rising and the longer durations falling. This is usually a negative for financial companies' earnings, as they borrow short and lend long. The VIX Volatility Index fell as traders' demand for options protection waned, suggesting they are less worried about price volatility in the days ahead.
Looking forward, plenty of economic reports are on the docket in the coming days. Traders will probably keep a sharp eye on Thursday’s release of the Consumer Price Index for January, which should show the current level of inflation in the economy and whether or not it has peaked, and this will probably be a key data point for the U.S. Federal Reserve when determining interest-rate policy in March. Recently, traders have been pricing in a 75% chance of a 25-basis-point hike and a 25% chance of a 50-basis-point hike in March, but this number could substantially change based on the new pricing data. Other releases include initial jobless claims on Thursday and the University of Michigan Consumer Sentiment Index on Friday. There will also be plenty of earnings reports today after the today’s closing bell and tomorrow morning, which will likely affect market sentiment. Overall, we think any changes to the earnings and inflationary outlooks will drive trading 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.
