The futures market started in the red yesterday after a mixed trading day. The stock market indices fell early yesterday, as fears of a recession grew over the Fourth of July holiday weekend. The markets reached their daily lows in short order. Sentiment started to rebound throughout the session, and the markets trended higher into the afternoon. The NASDAQ and S&P 500 eventually reached the green, rising 194 points and six points respectively, while the Dow Jones Industrial Average, which was down more than 700 points at its intra-day nadir, cut a notable portion of its losses and finished just 129 points in the red. The futures markets then trended lower through the morning, ahead of some important economic reports later today, including the ISM Services index release for June at 10:00 A.M. (EDT) and job openings and quits (JOLTS) data. Moreover, the Fed minutes are expected at 2:00 P.M. (EDT). This will likely give some insight into how the Fed is thinking about future interest-rate policy. Overall, the markets appear likely to start in the red today.
Market breadth turned slightly negative yesterday, as decliners outpaced advancers by a 1.2-to-1.0 ratio. Communications stocks were among the best performers, aided by several companies with strong movie results over the holiday weekend. On the other hand, energy issues were among the weakest performers. On point, oil prices fell below the $100-per-barrel level, as fears of a recession continue to grow. Additionally, the United States just passed the Fourth of July, which tends to be the peak of the summer travel season.
Elsewhere, U.S. Treasury bond yields fell yesterday, as investors looked for safe-haven securities. Of note, the two-year Treasury note yield traded above the 10-year Treasury note yield, which normally portends a recession. Bond traders are still pricing in a 75-basis-point hike at the next Fed meeting later this month, but odds of a smaller half-percentage-point increase have risen. The CBOE Volatility Index (VIX), which measures the magnitude of price movements in the S&P 500, started yesterday much higher but trended lower throughout the session to end at breakeven levels.
Several economic reports will be on the docket in the days ahead. These include initial jobless claims on Thursday and June employment and unemployment data on Friday. These will likely show the state of the economy and how well the American worker is holding up. Higher wages have been a key contributor to inflationary pressures, so the Fed will likely keep an eye on these data points as well. Elsewhere, several earnings reports will be released in the days ahead, though the number will pick up next week. Overall, we think all eyes will be on the state of the labor market and the economy this week.
– John E. Seibert III
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
