Stock futures are trading well in the green this morning, rebounding after the worst day of trading since March. The stock market has generally been weaker this September, but the selling accelerated yesterday. Still, several stocks have reached oversold technical levels, and lower prices have provided opportunities for stock pickers to make new investments. Additionally, durable goods orders ticked up 0.2% in August compared to an expected 0.5% decline, while durable goods excluding transportation improved 0.4%, showing that demand and the consumer have remained resilient. Overall, this suggests a strong start to the trading day.
The stock market started negatively yesterday, due to concerns about the Federal Reserve’s higher-for-longer interest-rate strategy, the potential shutdown of the U.S. government, and the prospect of a weaker economy. Additionally, the U.S. Federal Trade Commission announced that it is suing ubiquitous online retailer Amazon (AMZN) for "illegally maintaining monopoly power" in an antitrust lawsuit. This development caused a large selloff in retail and tech-based names. The markets largely declined throughout the trading session and ended near their lows. Overall, the S&P 500 fell 64 points (down 1.47%), the NASDAQ retreated 208 points (down 1.57%), and the Dow Jones Industrial Average declined 388 points (down 1.14%). Market breadth was extremely bearish, as decliners outpaced advancers by a 5.5-to-1.0 ratio. All 11 stock market sectors were lower yesterday, but energy stocks were among the best performers, if only on a relative basis. Utility equities were among the weakest performers of the day, hurt by fears about interest rates. This fall in utilities is a bit unusual, given that utilities are usually considered a haven in market downturns.
In commodity news, crude oil prices firmed up after an initial bout of selling, as traders sold their positions after weeks of higher prices. Still, the prices hit a two-week low yesterday before recovering a bit. Elsewhere, U.S. Treasury bond yields were mixed, as short-term rates rose and long-term ones fell. The yield curve remains inverted, with short-term rates trading higher than those with longer durations. A key market metric called the 2-year/10-year spread, a favorite of bond traders, has been moving towards parity. Historically, that measure has been utilized to time a recession, and the 10-year bond reached its highest level in 15 years yesterday. The Chicago Board Options Exchange Volatility Index, or VIX, more commonly known as the fear index, rose rapidly, nearing levels not seen since May.
Several economic reports are slated for release in the days ahead. These include initial jobless claims and the Bureau of Economic Analysis's final revision for second-quarter U.S. GDP on Thursday. On Friday, core- and non-core personal consumption expenditures (PCE) for August and September's final consumer sentiment index are on the docket. Additionally, several regional Federal Reserve Presidents will give remarks on the economy, while Chairman Powell is hosting a town hall meeting with educators on Thursday. Elsewhere, a few dozen earnings reports will be released in the coming days, including notable Dow-30 Company Nike (NKE) on Thursday. - John E. Seibert III
At the time of this article’s writing, the author did not hold positions in any of the companies mentioned.
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