The futures markets were in the green this morning, ahead of the release of homebuilding data. This report showed that August housing starts were 1.36 million (annualized), while building permits were 1.48 million. Both figures beat expectations, with lower mortgage rates helping to boost demand. Though the higher level of homebuilding is a positive for the economy, the stock markets moved little on this release. Overall, the higher futures prices suggest a positive start to the trading day.
All eyes will be on the latest Federal Open Market Committee (FOMC) meeting, which wrapped up yesterday. Inflationary pressures have continued to decline, and market participants believe that the Federal Reserve will cut the Fed Funds rates for the first time since March of 2020. Most traders think that this cut will be 50 basis points, though a notable minority believe the cut will be a more modest 25 basis points. Additionally, the market community will be looking toward Federal Reserve Chairman Jerome Powell’s remarks in announcing the decision, which could further impact sentiment for future interest rate policy. Overall, this will be a key piece of market data, driving trading in the coming days.
The market started positively yesterday, with the major market indices trending higher in the early portion of the trading session, benefiting from better-than-expected retail sales in August. Sales expanded 2.1% year over year, and core sales, which exclude autos and gas, were up 0.1% month over month. The market took this news in stride before selling positions in the second half of the trading session. Overall, the S&P 500 rose one point (up 0.03%), and the NASDAQ increased 36 points (up 0.20%). However, the Dow Jones Industrial Average declined 16 points (down 0.04%). Market breadth was quite positive, with advancers outpacing decliners by a 1.6-to-1.0 ratio. Energy stocks were amongst the best performers, aided by higher prices for the underlying commodities. On the other hand, healthcare stocks were amongst the weakest performers.
In commodity news, oil prices rose yesterday, rebounding after weeks of lower prices as the commodity reached an oversold level in recent days. Fears about potential supply disruption in the Middle East helped to buoy sentiment. Elsewhere, U.S. Treasury bond yields were mixed, with rates on long-term bonds rising more than those with shorter durations. The Chicago Board Options Exchange Volatility Index, or VIX, commonly known as the fear index, rose yesterday as traders bought options to hedge against higher volatility in the coming days.
Looking ahead, a few economic reports will be released in the days ahead. These include the Philadelphia Fed manufacturing Survey and existing home sales on Thursday. Elsewhere, few companies are slated to report quarterly results in the days ahead, though notable logistics company FedEx Corp. (FDX) will report tomorrow. With so few earnings and economic reports, we believe that the results from the latest FOMC meeting, particularly the expected rate cut, will likely influence stock trading in the days ahead, potentially leading to increased market activity and volatility. - John E. Seibert III
At the time of this article’s writing, the author held positions in none of the companies mentioned.
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