The futures market started in the red yesterday, after a strong trading session during the day. The market indices began in the green and continued to march higher throughout the day due to progress in talks between Ukraine and Russia, eventually ending around their intra-daily highs. All told, the Dow Jones Industrial Average closed higher by 599 points, the S&P 500 was up 89 points, and the NASDAQ climbed 367 points. Market breadth was rather strong yesterday, as advancers outpaced decliners by a 2.2-to-1.0 ratio. Technology stocks were among the best performers on the day, reversing a portion of their losses over the past few weeks. Meanwhile, energy issues were among the day’s weakest, hurt by a decline in the related commodities.
The futures market continued to trend lower through the evening, giving up a portion of the day’s gains. However, sentiment turned around, and the futures market started to climb through the night at a brisk pace. Futures were well into the green by early morning due to higher hopes of progress between Ukraine and Russia in their cease fire talks. Shortly thereafter, February retail sales figures came out, showing an increase of 0.3%, which was close to consensus expectation. In addition, last month’s figure was revised upward, to 4.9%, showing much stronger results in January. Meanwhile, import prices were up 1.4%, month over month, though excluding the energy component cuts that number in half, to 0.7%. These indicators showed that the economy is still growing, and resulted in little change in the futures market. All told, we expect a strong start to the trading day.
Later in the day, the U.S. Federal Reserve will release the results of its interest-rate policy decision. Most traders are pricing in a 25-basis-point hike, though a small contingent of traders is pricing in a 50-basis-point increase. Even with the changes priced in, market participants will still be looking to gather further information from Federal Reserve Chairman Powell, who will speak later in the afternoon. Chairman Powell should provide insight into the Fed decision-making process, and what the near-term monetary policy outlook course may look like. This will likely be a key determinant of how the market performs over the coming months, as the Fed implements a less accommodative monetary policy.
In commodity news, oil prices fell sharply yesterday, continuing a trend lower and reaching a bear market after peaking on March 7th. This reversal was caused by a resurgence of the coronavirus in China, which may well dampen demand in Asia and the need for crude. Meanwhile, U.S. Treasury yields were a mixed bag, with short-term yields rising and long-term yields falling, which is usually negative for financial companies’ earnings, as they borrow short and lend long. The VIX Volatility Index, which measures the magnitude of price movements in the S&P 500, fell yesterday, as demand for options protection eased a bit.
Looking forward, several economic reports will be released in the coming days. These include housing starts for February, the Philadelphia Fed manufacturing index, and initial jobless claims on Thursday. Additionally, existing home sales and leading indicators are slated for Friday. These factors should indicate how well the economy is doing. Meanwhile, the pace of earnings releases has slowed considerably, and very few companies will report quarterly results over the coming days. Overall, a quiet earnings front will likely shift investors’ attention to the economy, the war in Ukraine, and any developments concerning the coronavirus abroad.
– John E. Seibert III
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
