Wall Street’s attention today will turn to the Federal Reserve, with the central bank’s monetary policy decision coming at 2:00 P.M. (EDT). Traders are betting on a three-quarter percentage-point increase at today’s FOMC meeting, but an even bigger hike can’t be completely ruled out given the stubbornly high June inflation readings. Traders will also be keen to hear Federal Chairman Powell’s guidance regarding future interest-rate hikes, given that the longer-term outlook is currently unclear. How hawkish or dovish the Fed is with regard to future monetary policy will likely drive trading in the coming days.
Yesterday’s stock performance was rather weak, coming amidst underwhelming earnings outlooks from several companies and disappointing economic news. New home sales dropped to an annualized rate of 590,000, while the Conference Board’s Consumer Confidence Index dropped. On the earnings front, Dow-30 component Walmart (WMT) led the way lower, as traders did not like the earnings outcome or guidance for margin pressure in the coming quarters ahead. However, 3M (MMM) shares fared much better, as the conglomerate announced it would spin off its healthcare unit. Still, the conglomerate cut near-term guidance and noted that its Aearo Technologies subsidiary filed for Chapter 11 bankruptcy protection. The indices trended lower through the day, ending the session not too far from their lows. Overall, the Dow Jones Industrial Average fell 229 points, the NASDAQ was off 220 points, and the S&P 500 declined 46 points. Market breadth was negative yesterday, as decliners outpaced advancers by a 1.6-to-1.0 ratio. Utility equities were among the strongest performers, while consumer discretionary stocks were among the weakest.
In extended hours trading, a few key technology names reported better-than-expected results, driving the futures market higher and offsetting a portion of the day’s losses. The futures stayed positive through the evening and were not affected much by early morning reports, suggesting a higher start to the trading day.
In commodity news, oil prices fell slightly yesterday, as traders feared that a slowdown in the economy would drive demand for the fuel lower. Elsewhere, U.S. Treasury Bond yields were a mixed bag. Short-term yields remain higher than long-term ones; this inversion usually is a harbinger of a recession.
Several key economic reports will be released in the days ahead. These include initial jobless claims on Thursday, as well as the first estimate for second-quarter GDP (gross domestic product). Core and noncore PCE Inflation, personal income, and the University of Michigan consumer sentiment index for July are on the docket for Friday. These will likely give further insight into inflation, while gauging the strength and willingness of the U.S. consumer to spend. Likewise, the next few days will bring a number of important earnings releases, including quarterly results from Apple (AAPL), Honeywell (HON), Intel (INTC), and Merck (MRK) on Thursday and Chevron (CVX) and Proctor & Gamble (PG) on Friday. Still, peak earnings season will not hit its apex until next week. Overall, we think most eyes will be on today’s Federal Reserve monetary policy decision, Friday’s inflation data, and the results and outlooks provided by the aforementioned blue-chip companies.
− John E. Seibert III
At the time of this article’s writing, the author held positions in one or more of the companies mentioned.
