The futures market started higher after a choppy trading day yesterday. Earnings news was mixed and brought an uneven reaction from Wall Street. At the same time, a record level of job quits (4.5 million) occurred last month, suggesting that laborers are finding higher pay elsewhere and are confident in the broader strength of the economy. Additionally, traders were somewhat reluctant to move their positions much ahead of this afternoon’s interest-rate policy decision from the Federal Reserve following the conclusion of its two-day Federal Open Market Committee meeting. Overall, the S&P 500 rose 20 points, the NASDAQ finished up 28 points, and the Dow Jones Industrial Average climbed 67 points. The futures market continued higher through the evening hours, as solid earnings reports from several companies buoyed after-market sentiment. Still, trading remained somewhat uneven. By morning, however, futures were decidedly in the green. The Automatic Data Processing (ADP) unemployment report showed private payrolls increased by 247,000, which was lower than expectations, but this disappointing data did not have much effect on the futures, suggesting a positive start to the trading day.
All eyes will be on the U.S. Federal Reserve later today, which, as noted above, will release its monetary policy decision at 2:00 P.M. (EST). Economists predict that the Fed will raise the benchmark short-term interest rate by 50 basis points in an attempt to combat high inflationary pressures. Moreover, the Fed is also expected to announce the start of quantitative tightening or the rolling off of assets from its balance sheet, which would reduce liquidity from the financial system. These moves will likely drive bond yields higher and could reduce earnings across a wide swath of companies through higher operating costs. Market watchers will also be monitoring commentary from Fed Chairman Powell after the release to glean any additional information about possible further rate hikes at the June meeting.
Elsewhere, market breadth was rather positive yesterday, as advancers outpaced decliners by a 1.7-to-1.0 ratio. Energy stocks were among the best performers, while consumer staples were among the laggards.
In commodity news, oil prices were a mixed bag during regular trading, consolidating after a strong move to the positive on Monday. However, the report of a large crude inventory drawdown after the bell Tuesday is driving energy prices higher this morning. Elsewhere, treasury bonds traded unevenly, as short-term yields rose a bit and longer-term durations fell. Some of the long-term yields remain lower than those with shorter durations, suggesting an inverted yield curve, which often predicts a recession. The VIX Volatility Index, a measure of the magnitude of price movements in the S&P 500, declined as demand for options protection waned.
Looking ahead, several economic reports will be released in the coming days. These include initial jobless claims and economic productivity in the first quarter on Thursday, as well as nonfarm payrolls and the unemployment rate on Friday. Moreover, hundreds of earnings reports will be on the docket in the coming days, including those from a number of retailers, which should give further insight into how the consumer is faring.
– John E. Seibert III
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
