The futures market is trading in the green ahead of the Federal Open Market Committee (FOMC) meeting this afternoon, after markets took a beating Tuesday. Most market participants anticipate a 25-basis-point hike will occur later today but remain uncertain whether or not the central bank will signal further upcoming interest-rate hikes in its battle against inflationary pressures. Traders will look at the accompanying Fed statement with a keen eye to discern what changes have been made in the bank’s outlook and will be carefully watching Federal Reserve Chairman Jerome Powell’s commentary after the decision. Many market participants also anticipate easing monetary policy later this year, so they will look for evidence later today.
Other top news in the market this morning is the Automatic Data Processing (ADP) Payroll Report, which showed that private payrolls increased by 296,000 jobs in April, handily beating expectations. Leisure and hospitality jobs expanded the fastest (up 154,000 jobs), followed by education and health services (up 69,000 jobs, combined). Conversely, the financial (down 28,000 jobs) and manufacturing sectors (down 38,000) were among the weakest.
The stock market started poorly yesterday as fears about the global economy took hold. The market indices fell throughout the day and ended at their daily lows. Overall, the S&P 500 fell 48 points (down 1.16%), the NASDAQ was off 132 points (down 1.08%), and the Dow Jones Industrial Average declined 367 points (down 1.08%). Market breadth was heavily negative, with decliners outpacing advancers by a 4.0-to-1.0 ratio. There was little respite, as 10 of 11 sectors finished the day significantly lower, with energy issues amongst the worst performers. On the other hand, consumer discretionary stocks performed the best, bolstered by outperformance at Amazon.com (AMZN) and McDonald’s (MCD).
In commodity news, oil prices slipped as worries increased about the state of the global economy. Data from oil-importing China showed weaker manufacturing data, while fears of higher interest costs in the U.S. have hurt future demand expectations. Elsewhere, U.S. Treasury bond yields were mixed as short-term rates rose and long-term rates fell. An inversion continues to occur in the yield curve, as shorter-term rates are trading above long-term ones, which usually portends a coming recession. The Chicago Board Options Exchange Volatility Index, or VIX, more commonly known as the fear index, rose rapidly yesterday as traders rushed in to purchase options protection against their positions.
Several key economic reports will be released in the days ahead. These include the Bureau of Labor Statistics report on U.S. productivity, unit labor costs, and initial jobless claims on Thursday. On Friday, the employment report and unemployment rate will be released, showing the state of the U.S. labor market, which has been a key driver of inflationary pressures. Elsewhere, upcoming first-quarter earnings reports will include Dow-30 component Apple (AAPL) after the close on Thursday. - John E. Seibert III
At the time of this article’s writing, the author held positions in one or more of the companies mentioned.
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