The futures market started in the red after a strong day of trading yesterday. The day began well, as the stock market bounced in early action after a choppy trading day on Monday. The major indices rose through the day, only faltering when stocks reached a presumed overbought condition. Still, prices marched higher, reaching a new apex. An interview with Fed Chairman Jerome Powell in which he stated that the central bank might have to go past neutral interest rates to rein in inflation spooked the broader market, but stocks recovered when he noted that the Fed isn't raising interest rates by more than 50 basis points as "monetary policy works through expectations." Traders viewed this statement positively, and the indices closed at their daily highs. Overall, the S&P 500 rose 81 points; the NASDAQ finished up 322 points; and the Dow Jones Industrial Average increased 431 points. By morning, however, the futures market had fallen into the red as a disappointing quarterly report from mass merchandiser Target (TGT) weighed on sentiment. This suggests a weak start to the trading day.
Meanwhile, market breadth was very strong yesterday, as advancers outpaced decliners by a 2.9-to-1.0 ratio. Technology issues and materials stocks were among the top performers, and 10 of the 11 sectors ended in the green. The more-defensive consumer staples group was a laggard. These moves represent a reversal of price action over the last several trading sessions.
In commodity news, oil prices continued to climb higher yesterday, as traders priced in higher demand for the fuel source. Lockdown restrictions have been lifted in parts of China, which traders think will lead to higher fuel use across the globe. Elsewhere, U.S. Treasury yields were mixed, as short-term interest rates rose and long-term ones fell. This flattening of the yield curve is usually negative for financials' earnings. The CBOE Volatility Index (VIX), which measures the magnitude of price movements in the S&P 500, fell as demand for options protection waned a bit.
Looking ahead, several economic reports will be released on Thursday. These include jobless claims, leading indicators, and the Philadelphia Fed Manufacturing Survey. However, Friday will be quite barren of reports. On the earnings front, a few dozen earnings reports are due after the bell today and on Thursday. However, these levels of earnings reports are nowhere near as high as last few weeks, as earnings season comes to a close. As noted above, the disappointing report from Target, as well as a weak release from home improvement giant Lowe’s (LOW), which showed a decline in same-store sales in the latest quarter, is weighing on the overall market in extended hours trading. These disappointing releases from the retail giants have brought concerns about the consumer, as inflation continues to surge.
– John E. Seibert III
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
