The stock market put in a weak session yesterday. Equities started trading lower in the early hours, as traders were unsure of the reaction from China when U.S. House Speaker Nancy Pelosi visited Taiwan; she is the highest-ranking U.S. official to visit the island in 25 years. Traders sold on the risky event, assuming this would hurt U.S.-China relations. Meanwhile, several stocks reported lackluster earnings reports and outlooks, including Dow-30 component Caterpillar (CAT). Management noted that demand was weaker in China, while currency headwinds and supply-chain issues were a factor in the bottom-line performance. After an initial decline, the market indices moved higher, as the reaction from China was viewed as relatively muted and better than expected. Stocks advanced through the afternoon, and the S&P 500 and NASDAQ traded in the green for a spell. However, yesterday afternoon, several regional Federal Reserve chairs commented that additional interest-rate hikes would be necessary to mitigate inflationary pressures. As a result, earlier gains were erased and the major indexes returned near their daily lows amid risk of further interest-rate hikes in the quarters ahead. Overall, the S&P 500 fell 27 points, the NASDAQ was off 20 points, and the Dow Jones Industrial Average declined 402 points.
Meanwhile, the futures market started to drift higher through the evening and was in the green by this morning, suggesting a strong start to today’s session. Still, the S&P U.S. Services PMI and ISM Services Index will be released once the market opens, potentially changing the market's trajectory.
Several economic reports will be released in the days ahead. These include initial jobless claims and the trade deficit on Thursday, as well as the nonfarm payrolls, the unemployment rate, and the labor force participation rate on Friday. These will likely show how well the labor market is performing considering that the Federal Reserve has already passed several interest rate hikes this year. Of note, the central bank has been fairly aggressive in its approach lately. Traders are hoping that a slightly cooler economy and lower inflation will allow the Fed to slow the pace of its tightening efforts. Several notable earnings reports will be released in the next few days as well.
Overall, we think that most eyes will be on the state of the consumer and the few key earnings reports in the days ahead. - John E. Seibert III
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
