The futures markets are trading in the green this morning, following a week of lackluster stock performance. The major indices fell several days last week, marking the worst weekly returns since March. Still, traders are buying equities today, including those of the large insurance and investment company Berkshire Hathaway (BRK), which reported strong cash generation for the second quarter and benefited from higher stock prices in its investment portfolio. Traders will likely be cautious ahead of inflationary data due later this week. Overall, the upward movement for futures markets suggests a strong start to trading today.
The stock market fell on Friday following a U.S. employment report that was weaker than expected, with the nation adding around 187,000 jobs in July. Average wages ticked up 0.4% month over month, or 4.4% year over year, showing that inflationary pressures remain sticky in the labor market. By the end of the trading session, all three major indices were lower. The S&P 500 fell 24 points (down 0.53%), the NASDAQ declined 50 points (down 0.48%), and the Dow Jones Industrial Average was off 150 points (down 0.43%). Though the markets slipped on Friday, market breadth slightly favored advancers over decliners by a 1.2-to-1.0 ratio, suggesting that companies with higher market capitalizations played a bigger role in the indices’ declines. Consumer discretionary stocks were among the best performers, while technology issues were among the worst.
In commodity news, oil prices have continued to trend higher following output cuts from Russia and Saudi Arabia in recent weeks, with crude prices trading around $82 per barrel. Elsewhere, U.S. Treasury bond yields were higher across the board on Friday, indicating that traders believe interest rates will be "higher for longer." The yield curve remains sharply inverted, with short-term rates trading well above long-term yields, which usually portends a coming recession. Still, the curve has flattened a bit over the past week, with long-term rates rising relative to those with shorter durations. The Chicago Board Options Exchange Volatility Index, or VIX, commonly known as the fear index, rose rapidly through the day on Friday as traders rushed to purchase options protection against downside risk in prices. The VIX has generally trended higher over the past week, breaking the prior trend of declines throughout much of 2023.
Several economic reports will be released later this week, including U.S. Trade Balance and Wholesale Inventories on Tuesday. On Thursday, the July core and noncore Consumer Price Indices should give further insight into how inflationary pressures are affecting the economy. Core and noncore Producer Price Indices and the University of Michigan's preliminary consumer sentiment index for August will be released Friday, and a few Federal Reserve Regional Presidents will give remarks on the economy in the days ahead. Elsewhere, several hundred companies will report quarterly earnings and provide profit expectations for the year's second half in the days ahead. Still, many of these companies are smaller, given that 84% of the S&P 500 has already reported. Notably, Dow-30 component The Walt Disney Company (DIS) is slated to report on Wednesday after the close. Overall, we think most eyes will be on inflationary data and select earnings performance in the days ahead. - John E. Seibert III
At the time of this article’s writing, the author held positions in one or more of the companies mentioned.
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