The futures markets are trading above break-even levels this morning, following a day of weaker action in the stock market yesterday. The markets have bounced back considerably over the past two weeks, reaching overbought territory, and were on pace for the longest series of daily gains since 2004, had prices improved yesterday. A few earnings reports from retailers, such as Target (TGT), have been viewed positively by the market, as earnings improved there, though the company has taken a careful tone on its future sales outlook. Overall, this suggests a positive start to the trading day. Later, the Federal Reserve will release the minutes of its recent Federal Open Market Committee (FOMC) meeting, which should give further insight into the central bank’s decision-making process.
The market started higher in the first portion of yesterday’s session, quickly reaching overbought levels, and traders took profits through the remainder of the day. This caused the indices to decline, giving back all of the day’s gains and falling into the red. Overall, the S&P 500 was lower by 11 points (down 0.20%), the NASDAQ fell 60 points (down 0.33%), and the Dow Jones Industrial Average declined 62 points (down 0.15%). Moreover, market breadth was rather negative, with decliners outpacing advancers by a 1.9-to-1.0 ratio. Consumer staples stocks were amongst the best performers, while energy issues were amongst the weakest.
In commodity news, oil prices fell considerably yesterday as traders priced in reduced geopolitical risk. The move was prompted by word that tensions may be winding down in the Middle East, with speculation that a cease-fire agreement may be in the works between Israel and Hamas. Gold continued to march higher, reaching an all-time high of around $2,543.76 per troy ounce.
Elsewhere, U.S. Treasury bond yields fell as traders moved into the safe-haven asset. Bond traders are pricing in several interest-rate cuts in the coming months, including high odds of a 25-basis-point reduction in September.
The Chicago Board Options Exchange Volatility Index, or VIX, commonly known as the fear index, moved higher yesterday, as traders predict a greater amount of stock-price volatility in the days ahead. Still, this figure remains well off of the highs reached on August 5th, having fallen considerably since.
Several economic reports will be released in the days ahead. These include initial jobless claims, the flash services and manufacturing Purchasing Managers’ Indices, and existing home sales on Thursday. On Friday, Federal Reserve Chairman Jerome Powell will give a speech in Jackson Hole, Wyoming, which should provide further insight into the lead bank’s views on the state of the broader economy and future interest-rate policy. On the earnings front, several dozen companies will report quarterly results, though we are well past the peak of the earnings season. - John E. Seibert III
At the time of this article’s writing, the author did not hold positions in any of the companies mentioned.
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