The futures markets started weakly last night following a large selloff in the market on Friday. Fears of a possible recession are likely behind the continued skittishness on Wall Street. The most recent stretch of heavy selling began last Wednesday when the Federal Reserve hiked the benchmark short-term interest rate to between 3.00%-3.25%, and traders worried about the effects of higher borrowing costs impacting Corporate America’s profits. Additionally, the U.S. dollar strengthened against a basket of currencies, which should hurt the profits of the multination companies when translated back into greenbacks.
Selling took place throughout the day on Friday, capping a difficult week for stocks. The S&P 500 Index fell 65 points, the Dow Jones Industrial Average was off 486 points, and the NASDAQ was down 199 points. The futures market trended lower throughout night and the early morning hours, suggesting a weak start to the trading day. Investors should note that several regional Fed presidents will remarks throughout the day today, and their commentary will likely drive the direction of trading as the market remains highly focused on monetary policy.
Not surprisingly, market breadth was very negative on Friday, as declining issues outpaced advancers by a seven-to-one ratio. All eleven market sectors were down, with energy stocks being the biggest laggards. The oil and gas stocks were hurt by a steep slide in the price of related commodities. On the other hand, healthcare equities were among the best performers on a relative basis.
In commodity news, oil prices fell to around $77 per barrel on Friday, and remain below the $80-a-barrel level this morning, as fears of lower demand in a recession caused traders to worry about future oversupply. Elsewhere, U.S. Treasury bond yields were up largely up across the board, though the yield curve remains inverted with short-term rates higher than long-term durations, which usually indicates a coming recession. The Chicago Board Options Exchange (or VIX) Index rose rapidly on Friday, as demand for options protection increased.
Several economic reports are on the docket this week, including the latest Case-Shiller Home Price Index, consumer confidence, and new home sales data tomorrow. On Thursday, initial jobless claims and the personal income and spending report for August are scheduled to be released. The latter report, which will include the Personal Consumption Expenditures (PCE) Index, will provide another highly anticipated reading on inflation. And, as noted above, several regional Federal Reserve presidents and Fed Chair Jerome Powell are slated to give speeches this week, which should provide some insight into the Fed's thinking. On the earnings front, we get the latest quarterly data from Dow-30-component Nike (NKE) after Thursday’s closing bell. Overall, we think most eyes will be on the comments from Federal Reserve leaders.
− John E. Seibert III
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
