The futures market started negatively last night after a strong trading session yesterday. Stocks largely rose throughout the day, rebounding after a weaker session on Monday, although few pockets of weakness persisted, including one in retail. Mass merchandiser Target (TGT) cut its guidance just a few weeks after lowering it at its earnings release, and several similar retailers dropped in tandem. Still, the vast majority of the market drifted higher throughout the day, and continued to rise when a report was released showing further growth in consumer credit. Overall, the indices ended not too far from their daily highs. The S&P 500 rose 39 points, the NASDAQ was up 114 points, and the Dow Jones Industrial Average increased 264 points. Following the close, however, the futures continued lower through the evening and were well into the red by midnight. This morning, a few European-based multinational companies indicated that the Ukraine conflict would affect quarterly results, which kept futures contracts in the red this morning, suggesting a weaker start to the trading day.
Market breadth was quite positive yesterday, as advancers outpaced decliners by a more than two-to-one ratio. Additionally, 10 of the 11 market sectors ended the day in positive territory, with energy stocks among the best performers. However, consumer discretionary issues were among the weakest, dragged lower by the aforementioned weakness in retail.
In commodity news, oil prices continued to rise as traders priced in a further imbalance between supply and demand. Elsewhere, U.S. Treasury bond yields largely rose across the board, as traders moved out of the safe-haven securities. Market expectations remain for a 50-basis-point hike to the benchmark short-term interest rate at the Fed’s two-day monetary policy meeting next week, where many traders will also be looking for further insight into how the central bank will determine future interest-rate policy. The VIX Volatility index, which measures the magnitude of price movements in the S&P 500, fell throughout the day, as traders demanded less option protection and priced in lower future volatility.
Looking ahead, several economic reports will be released in the days ahead. These include initial jobless claims and household net worth on Thursday, while the Consumer Price Index (CPI) for May and the University of Michigan’s Consumer Sentiment Index are slated for Friday. We think that most market participants will be interested in the Friday reports, which should show how consumers are faring and how much prices have increased in May. The latter report will probably be a key factor in how the Fed formulates its near-term interest-rate policies. There will be fewer earnings reports in the days ahead, suggesting more eyes will be on the economic reports.
– John E. Seibert III
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
