Before The Bell
After the weak trading session yesterday, the futures market showed some signs of life, rising a few points through the evening. By early morning, the futures contracts were a mixed bag, as positive earnings results, including beats from Target (TGT) and Lowe’s (LOW), helping a few of the indices. However, since then, those selective gains were retraced, and overall the futures are now indicating a modestly lower start to the trading day.
In general, traders will be looking at a few key economic indicators, which will be released throughout the session. At 8:30 A.M. (EDT), the Commerce Department reported mixed residential construction data. Housing starts fell 7.0% sequentially last month, but building permits rose 2.6%. The residential construction data did not have much of an impact on Treasury yields. Traders will also be looking toward the release of the FOMC minutes at 2 P.M. (EDT) for insights into the Federal Reserve’s thinking on interest rates. Meantime, earnings season is past its peak, though several large retailers have reported positive results before the bell, and many other companies will report after the close. Overall, we think that most traders will be looking to see how the release of the FOMC minutes impacts interest rates.
After several days of positive price movements and the indices reaching all-time highs, the stock market started poorly yesterday. Traders responded to economic releases suggesting a slowdown in the economy. In July, retail sales fell 1.1%, driven by a notable drop in vehicle sales, which were hurt by input shortages and higher prices for materials. This data suggested a larger-than-expected decline in economic activity, which generally spooked market participants. Traders sold their holdings throughout the day, but the indices started to rebound a bit through the final hours of trading. The Dow Jones Industrial Average closed lower by 282 points, the S&P 500 was off 32 points, and the NASDAQ fell 138 points. Market breadth was negative, as decliners outpaced advancers by a 2.7-to-1.0 ratio. Consumer discretionary stocks were among the worst performers, while healthcare issues and REITs were among the strongest. This suggests some sector rotation into equities that tend to outperform during an economic slowdown.
In commodity news, oil prices fell yesterday, hampered by thoughts of supply outpacing demand in the case of a slowdown. Meantime, U.S. Treasury bond yields remain low, as traders moved into the safe-haven asset. The VIX Volatility Index rose, with traders purchasing options protection.
– John E. Seibert III
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
