Before The Bell
The futures market started higher on Sunday night. It continued to move up throughout the Memorial Day holiday, as more states began to reopen their economies from the coronavirus-related lockdowns. Too, sentiment improved, thanks to hopes that a coronavirus vaccine would be found. The Dow Jones Industrial Average futures rose over 300 points by late Monday night. The positive sentiment continued throughout the overnight hours, and by the time Tuesday morning arrived, the Dow futures were up nearly 500 points. This suggests a strong start to the day’s trading.
Heading into the three-day weekend, market breadth was very mixed, as advancers and decliners were about even last Friday. Utilities and REITs were among the best performers, suggesting that market participants are betting on companies that usually have stable operations and benefit from lower interest rates. On the other hand, energy stocks were among the weakest. Still, this area has been one of the stronger sectors over the past month, especially after oil prices had hit their all-time lows earlier this year.
In commodities news, oil prices continued to advance over the three-day holiday as a return to normal supply-demand dynamics was seen. In fact, oil valuations were up almost $1 to over $34 per barrel, suggesting higher fuel usage levels as the majority of the United States economy comes out of lockdowns. Meantime, U.S. Treasury bond yields remain close to all-time lows, with the 30-year Treasury rate trading around 1.4%. The VIX Volatility Index has continued to drop in recent weeks as traders are pricing in less stock price volatility going forward.
In the week ahead, the traders will be looking at several pieces of key economic data, including the Case-Shiller Home Price Indices due out later today. This will show how housing prices have reacted to the coronavirus. Later in the week, weekly jobless claims will be released, which should provide some insight into how quickly the economy will recover after the states reopen. Too, the final University of Michigan Consumer Sentiment Index for May will be issued on Friday. Finally, the first-quarter earnings season is in its final stages, which ought to provide additional information on how some of these companies are faring. Overall, we think that the market will move on changes in sentiment concerning the economic recovery from the coronavirus and any progress on the virus front.
- John E. Seibert III
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
