The futures market fell yesterday evening, giving back some of the stock market gains made earlier in the day. The regular session started weakly after the Case-Shiller Housing Index showed high housing inflation. However, sentiment changed as news broke that Russia would be easing some military action across Ukraine. Additionally, reports showed that consumer confidence was higher than expected, and there were more job openings and job quits. Stocks halted their declines, trended sideways through much of the day, and rose into the final portion of the trading session. Overall, the S&P 500 was up 56 points, the NASDAQ increased 264 points, and the Dow Jones Industrial Average was up 338 points, showing their fourth straight day of gains.
As noted, the futures market started negatively and declined through the early evening; by midnight, they were decidedly in the red. This morning saw the release of the Automatic Data Processing (ADP) Payroll report, which showed that companies added 455,000 private-sector jobs in March, slightly more than expected. However, the jobs data moved the futures market little, suggesting a lower start to the trading day.
Meantime, market breadth was very strong yesterday, as advancers outpaced decliners by a 4.3-to-1.0 ratio. REITs were among the best performers, aided by a fall in long-term interest rates and the Case-Schiller Index reporting that housing prices were up 19.2% year over year in January. On the other hand, energy stocks were among the worst performers. This was somewhat unusual given that the underlying commodities traded well, suggesting a rebalancing toward other areas.
In commodity news, oil prices rose as a bigger than expected drawdown of inventories occurred. Still, the market remains undersupplied compared to conditions before the war in Ukraine. Elsewhere, bond yields were mixed, with short-term rates rising while long-term durations were falling. This flattening of the yield curve is usually a negative for financial companies' earnings. Additionally, medium-term bond yields remain higher than some of the longer-term ones; this is usually a predictor of a recession down the road, though the timing is generally uncertain. The VIX Volatility Index, which measures the magnitude of price movements in the S&P 500, fell yesterday as demand for options protection waned.
Looking ahead, several economic reports are slated for release in the days ahead. These include initial jobless claims, disposable income, and the Personal Consumption Expenditures Price Index on Thursday, as well as the March employment report and ISM Manufacturing PMI on Friday. Meanwhile, though fewer earnings reports are on the docket in the coming days, the number of reports will likely pick up over the next fortnight, as first-quarter reporting season commences in mid-April. Overall, for the remainder of the week, we think traders will be looking at the developments in the war in Ukraine, any commentary from the Federal Reserve, and the forthcoming earnings outlooks.
– John E. Seibert III
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
