The futures started in negative territory last evening and, for the most part, have been in the red ever since, suggesting a weak start to today’s trading day. Investors should note that Cleveland Fed President Loretta Mester and Federal Reserve Vice Chair Lael Brainard will give remarks during the day, which could impact trading once the session begins.
This comes on the heels of another weak session yesterday. The Global Service Purchasing Managers Index was lower than expected, adding to weakness and fears about the worldwide economy. Still, the ISM (Institute for Supply Management) Services Index showed demand hitting a four-month high. The indices declined through the early portion of trading before reaching an oversold level and rebounding. They then traded sideways for the rest of the session. Overall, the S&P 500 was down 16 points; the NASDAQ declined 86 points; and the Dow Jones Industrial Average fell 173 points. Market breadth was negative, as decliners outpaced advancers by a two-to-one ratio. REITs were among the top performers on the day, while communications stocks were among the laggards.
In commodity news, oil prices declined yesterday, following a rally on Monday caused by OPEC’s (Organization of the Petroleum Exporting Countries) agreement on a production cut. Elsewhere, despite a move lower in stocks, U.S. Treasury bond yields surged to their highest levels since June, as traders are now largely pricing in a 75-basis-point hike at the next Fed meeting later this month. The CBOE Volatility Index (or VIX), which measures the magnitude of price movements in the S&P 500, rose as demand for options protection increased.
Several economic reports will be released in the days ahead, including the latest Beige Book summation of economic conditions at 2:00 P.M. (EDT) today. That will be followed by initial jobless claims data and remarks from Federal Reserve Chairman Powell tomorrow. Traders will probably examine Chairman Powell’s commentary closely to obtain additional information about future interest-rate actions. On Friday, several regional Fed governors will provide comments. Additionally, several dozen companies are set to report quarterly earnings and outlooks over the rest of the week. Overall, we think that trading will largely focus on news from the Fed commentary on interest-rate policy.
− John E. Seibert III
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
