The futures market is mixed ahead of the open. Dow futures are trading lower, as worries increased about the debt-ceiling talks on Capitol Hill. Fitch, a bond rating agency, placed the United States AAA rating on a negative watch list due to increased risk related to these negotiations between the U.S. House of Representatives and the President. However, S&P 500 and NASDAQ futures are trading well into the green, buoyed by a notable jump in shares of semiconductor manufacturer NVIDIA Corp. (NVDA), which recorded stronger-than-expected earnings results. Given its large market cap, this stock makes up a larger portion of those indices. Overall, this early market action suggests a weaker start to the trading day, with a few sizable exceptions.
The stock market fell quickly yesterday as fears surfaced around the likelihood of a debt deal. The markets dropped and traded sideways throughout the rest of the day. Overall, the S&P 500 fell 30 points (down 0.73%), NASDAQ was off 76 points (down 0.61%), and the Dow Jones Industrial Average retreated 256 points (down 0.77%). Market breadth was rather negative, as decliners outpaced advancers by a 3.3-to-1.0 ratio. Energy stocks were among the best performers, boosted by a rise in related commodities. On the other hand, REITs were among the weakest performers, with interest-sensitive financials also notably trading lower.
In commodity news, oil prices rose yesterday, as weekly inventories showed a larger-than-expected drop. Elsewhere, U.S. Treasury bond yields were largely higher across the board, as the release of the Fed’s minutes showed “participants expressed uncertainty about how much more policy tightening would be appropriate.” A steepening of the yield curve occurred, with short-term interest rates rising more than long-term ones. The yield curve remains highly inverted, which usually portends a coming recession. At the same time, a growing number of traders have started to price in the possibility of another interest-rate hike at the June Federal Open Market Committee meeting. The Chicago Board Options Exchange Volatility Index, or VIX, also known as the fear index, was up considerably as traders bought options protection.
Several economic reports will be released later today and tomorrow. A number of regional Fed Presidents will be giving remarks on the economy later today. Additionally, plenty of data will be released on Friday, ahead of the three-day Memorial Day weekend. These include the Bureau of Economic Analysis’ core- and non-core personal consumption expenditures for April and the final University of Michigan Consumer Sentiment Index for May. On the earnings front, several companies will release quarterly results after the closing bell today and before the market opens tomorrow. Overall, we think most eyes will be on any inflationary data and any developments concerning the debt ceiling fight in Congress.
At the time of this article’s writing, the author did not hold any positions in the companies mentioned.
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