The U.S. stock market will probably face some challenges early this morning, as the broader equity futures are in the red ahead of the opening bell. Further, it should be noted that the market has been quite volatile lately, and more choppiness can likely be expected.
In economic news, investors will be closely watching the Federal Reserve this week. Specifically, the Federal Open Market Committee (FOMC) will wrap up a two-day meeting on Wednesday afternoon, with a much-anticipated interest rate decision. Given that inflation remains quite high, most investors expect that the central bank will vote for a 75-basis point rate increase. However, there has recently been some speculation that an even larger hike could take place. In addition, Wall Street will be listening carefully to the remarks offered by Chairman Jerome Powell, which will be delivered after the meeting. The Fed has been trying to bring down inflation without pushing the economy into a deep recession, but investors may be starting to think that this outcome may not be possible, especially if monetary policy becomes more restrictive.
Meanwhile, the housing market will be in focus this week, as well. On Tuesday, investors will get a look at latest monthly housing starts, followed by the existing home sales figures of Wednesday. These reports will be closely reviewed, as the real estate markets are a key part of the broader economy, and are quite sensitive to changes in the interest-rate environment.
In corporate arena, a couple of leading home builders will weigh in with their results later this week. On Wednesday, we will hear from both Lennar (LEN) and KB Home (KBH). These reports should be of interest to investors interested in the housing market and related industries (chemicals, home furnishings, etc.). Meanwhile, as the third quarter draws to a close, some corporations may start to issue revised guidance. Many companies have already announced workforce reductions, and analysts have been gradually lowering profit expectations.
From a technical perspective, the S&P 500 Index remains quite weak. The broader market average is now sitting just below the 3,900 mark, and it remains to be seen if this level will provide support, or if stocks will test the lows hit in mid-June. Sentiment seems quite pessimistic, but there has been little panic selling and the decline in prices has been orderly. Many traders following technical systems have noted that a period of “capitulation” may be needed before stocks can truly start to advance again. In either case, volatility will likely remain a key theme in the days ahead. – Adam Rosner
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
