The market put in a strong day of trading in the session following the Juneteenth stock market holiday. The indices trended higher through the session, recovering some losses incurred over the past week as sentiment improved. Data showed that May's U.S. existing home sales fell less than expected, to 5.41 million annualized, and this dropoff has been hurt by rapidly rising mortgage interest rates. Still, the indices ended not too far from their peaks, and the Dow Jones Industrial Average finished up 641 points, the NASDAQ rose 271 points, and the S&P 500 increased 90 points.
The futures market started out positively after Tuesday’s session, but slipped through the evening and was well into the red by midnight. Selling continued overnight as sentiment weakened.
Additionally, traders will keep their eye on Federal Reserve Chairman Jerome Powell, who will testify on the Fed's monetary policy before the Senate Banking Committee this morning. This may change investors' views on future monetary policy from the Fed. Currently, traders are pricing in a 75-basis point hike at the July Federal Open Market Committee meeting, but changes will probably depend on inflationary pressures.
Meanwhile, market breadth was quite positive yesterday, as advancers outpaced decliners by a 2.7-to-1.0 ratio. All sectors of the economy were up yesterday, but energy issues were among the strongest, rallying from an oversold condition. Those stocks had been down more than 10% in the previous five trading days. Elsewhere, communications stocks are among the weakest. Dow-30 component UnitedHealth (UNH) was among the best performers despite losing a case in the Supreme Court, likely benefiting from the added clarity on the rule in question.
In commodity news, oil prices recovered yesterday after a week of declines as concerns about a potential recession hurt traders' demand expectations, but are again reversing costs this morning, with WTI quotations down nearly 5% earlier this morning. Elsewhere, U. S. Treasury bond yields were mixed, with short-term rates rising and long-term durations falling. This combination usually is a negative for financial companies' earnings, which borrow short and lend long. The CBOE Volatility Index (VIX) fell yesterday, as demand for options protection declined.
Looking ahead, several key economic reports will be on the docket in the days ahead. These include initial jobless claims on Thursday. Additionally, Federal Chairman Powell will be giving further testimony in front of the House, which may provide insight into future Federal Reserve monetary policy. Moreover, the University of Michigan's final consumer sentiment index reading for June and new home sales will be released on Friday. Several earnings reports will be released after the bell today, but the rest of the trading week will be light on news from Corporate America. The number of earnings reports will start to pick up after the Fourth of July holiday. Thus, we think that changes in sentiment regarding the Fed's interest-rate policies and data on the U.S. economy will likely drive prices in the days ahead.
− John E. Seibert III
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
