The U.S. stock market seems set to move lower at the opening bell this morning. The international markets have lost considerable ground in overnight trading, and the S&P futures are currently down roughly 80 points. Of note, sentiment turned quite negative at the end of last week when traders were stunned by an elevated reading on the latest Consumer Price Index (CPI). Clearly, the news has Wall Street worried that inflation will be difficult to control, despite the Federal Reserve’s ongoing efforts.
In economic news, investors will have a few important reports to follow this week. On Tuesday, the Producer Price Index (PPI) for the month of May will be released, and this issuance should receive a good deal of attention. On Wednesday afternoon, the Federal Open Market Committee (FOMC) will wrap up its two-day meeting, and will provide an interest-rate decision, as well as some prepared remarks. It is widely expected that the Federal Reserve will approve a 50 basis-point rate hike at this week’s meeting. In light of the recent inflation numbers, some economists have suggested that a larger increase may be needed. However, it is not clear that higher interest rates alone will bring about lower prices, given that there seems to be ongoing supply-chain problems and major imbalances in the global energy markets. In either case, the central bank will have to act carefully to avoid pushing the economy into a recession.
In corporate news, a few important profit reports will be released this week. Today, we will hear from Oracle (ORCL), a leading name in the software industry. On Thursday, we will receive a report from Adobe (ADBE), a dynamic company in the technology sector. In addition, The Kroger (KR), a diversified retailer will deliver its numbers. Investors will be looking at these issuances carefully, given that a few major corporations have already stated that the outlook has become more challenging. In addition, many traders are now worried that numerous companies will temper their guidance, which would likely put additional pressure on equity valuations.
From a technical view point, the severe bout of selling that took place last Friday has set the market back considerably. Although, the averages did manage to rally several days ago, it now seems that the advance has hit considerable resistance. Investors may well need more information before they can start to feel confident about the current market environment.
– Adam Rosner
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
