The futures market started in the green yesterday, rebounding after a weak session during the trading hours. The markets fell quickly as fears increased about rising interest rates' effects on the economy, following news that April's new home sales fell more than expected (-16.6%), to a seasonally adjusted annualized rate of 591,000. However, the indices reached their daily lows early in the session and rebounded through much of the afternoon. The Dow Jones Industrial average even returned to positive territory by the close of Tuesday’s session. Overall, the S&P 500 was down 32 points; the NASDAQ was off 271 points; and the Dow Jones Industrial Average increased 48 points.
After closing, however, the futures started trending lower into the evening and were in the red by early morning, as traders await the minutes from the latest Federal Open Market Committee (FOMC) meeting minutes at 2:00 P.M. (EDT). The Federal Reserve has prepared the market for half-percentage-point hikes to the benchmark federal funds rate at the next two monetary policy meetings. Traders will be looking to see what additional insights can be gleaned as to the Fed's thought processes. Meantime, durable goods orders (up 0.4%) and capital core equipment (up 0.3%) missed expectations, but the futures did not move much after these data points. Overall, they suggest a weak start to the trading session.
Market breadth was rather uneven yesterday, favoring decliners over advancers by a 1.3-to-1.0 ratio. Utilities and consumer staples stocks were among the best performers, as a flight to safe-haven assets occurred. On the other hand, the consumer discretionary and communication services groups were among the weakest, falling considerably in price.
In commodity news, oil prices remained near the $110-per-barrel level, as demand expectations continue to rise ahead of the travel-heavy Memorial Day holiday weekend. Elsewhere, U.S. Treasury bond yields were lower across the board, as traders looked for safe-haven instruments. Still, medium-term yields fell more than others, and some inversions across the yield curve continue to exist, suggesting traders were strategic with what bonds they allocated money to. Not surprisingly, the CBOE Volatility Index (or VIX), which measures the magnitude of price movements in the S&P 500, rose yesterday as demand for options protection increased.
Looking forward, several economic reports will be released in the days ahead. These include initial jobless claims, the first revision to March-quarter GDP, and pending home sales for April on Thursday. Moreover, a large amount of data will be released on Friday, including a notable amount of inflation data. The real disposable income and consumer spending reports headline the releases, which will also include the final revision to the consumer sentiment index from the University of Michigan. Further, several dozen earnings reports will be released in the days ahead, with some major retailers releasing earnings reports and outlooks. We think most eyes will be on the inflationary data.
– John E. Seibert III
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
