The futures markets are trading in the red today, following weak stock performance yesterday after the Juneteenth holiday on Monday. Traders reduced positions on Tuesday following a strong price increase for stocks over the past few weeks that benefited from the Fed’s most recent interest rate pause and better-than-expected earnings results. Some traders have taken profits due to the broader indices reaching overbought technical levels, as well. Additionally, a few key names are trading much lower this morning, including shipping-company FedEx (FDX), which showed weaker-than-expected revenues in the recent quarter that may be a harbinger of broader global economic activity. Overall, traders appear poised to continue taking profits once the market opens. Still, readers should note that Federal Reserve Chairman Powell will speak to a United States House of Representatives panel later this morning, which could give further insight into the Fed’s future monetary policy and decision-making processes.
The market fell yesterday after the three-day holiday weekend, despite a notable improvement in housing starts, which rose to an annualized rate of 1.63 million units in May (up from 1.34 million in April), suggesting stronger coming construction activity. The stock market started the day lower, before recovering some of its losses midday. Still, the major indices ended in the red. Overall, the S&P 500 declined 21 points (down 0.47%), the NASDAQ fell 23 points (down 0.16%), and the Dow Jones Industrial Average dropped 245 points (down 0.71%). Market breadth was rather negative, as decliners outpaced advancers by a 2.1-to-1.0 ratio. Consumer discretionary stocks were among the best performers, with that sector being the only one to finish in the green. On the other side, energy equities were among the weakest, hurt by a decline in the related commodities.
In commodity news, oil prices fell on increasing uncertainty about demand in China for the product. That country’s recent decision to cut one- and five-year lending rates caused some to question the strength of its economy. Elsewhere, U.S. Treasury bond yields were higher across the board as traders moved away from the safe-haven asset. The yield curve remains heavily inverted, with short-term rates trading higher than 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, declined despite a retreat in the stock market.
Several economic reports will be released in the days ahead. These include initial jobless claims, existing home sales, and leading economic indicators on Thursday. The Standard & Poor’s Flash Services and Manufacturing Purchasing Managers Indices will be released on Friday. Additionally, several regional Federal Reserve Presidents will give remarks on the broader economy, which should provide further insight into the central bank’s interest rate decision-making process. Elsewhere, a few dozen, mostly-smaller companies will release quarterly results and outlooks. Overall, we expect most traders will be looking toward any indicators of future Fed policy. – John Seibert
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
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