Nasdaq, S&P 500 Futures Rise Ahead Of FOMC Minutes, Manufacturing Data — Analyst Sees January Effect Lifting Smid-Cap Stocks

Zinger Key Points
  • Equity markets got off to a rough start in the new year, extending the negative sentiment that was seen for much of 2022.
  • Odds are tilted heavily in favor of at least a mild recession, clouding the market outlook further.

Stocks could start Wednesday’s session on a cautious note, although the Federal Open Market Committee meeting could set the tempo for the market mood.

What Happened: On Tuesday, the major averages squandered their early gains and retreated sharply through the mid-session. After consolidating at these depressed levels for a while, they recouped some of their losses before ending lower in the first trading session of the year.

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Selling in some mega-cap tech names such as Tesla Inc. TSLA and Apple Inc. AAPL proved contagious and hit the broader market sentiment as well.

Energy stocks fell sharply in the session and tech stocks also came under selling pressure. On the other hand, communications, financial, real estate and industrial stocks saw some strength.

U.S. Indices' Performance On Tuesday
Index Performance (+/-)   Value
Nasdaq Composite -0.76%   10,386.98
S&P 500 Index -0.40%   3,824.14
Dow Industrials -0.03%   33,136.37

The January effect renders small and mid-cap stocks as new market leaders and 2023 is shaping up to be a potentially incredible year for small to mid-cap stocks, fund manager Louis Navellier said in a note.

LPL Financial’s Quincy Crosby noted that the Santa Claus rally customarily extends to the first two trading sessions of the new year. “And if Santa remains elusive today and tomorrow, at least it’s becoming clearer that the Fed is closer to the end of its interest rate hiking campaign than it was just some months ago,” he added.

Looking ahead to 2023, LPL expects falling interest rates and lower inflation to support higher stock valuations. If the economic growth and inflation improve as 2023 progresses, stocks may also get a lift from prospects for stronger earnings growth in 2024, it added. The firm’s fair value estimate for the S&P 500 is at 4,400–4,500 at year-end 2023, based on a price-to-earnings ratio of 18–19 and $240 per share in S&P 500 earnings in 2024.

Here’s a peek into index futures trading:

U.S. Futures' Performance On Wednesday
Index Performance (+/-)  
Nasdaq 100 Futures +0.69%  
S&P 500 Futures +0.48%  
Dow Futures +0.33%  
R2K Futures +0.83%  

In premarket trading on Wednesday, the SPDR S&P 500 ETF Trust SPY climbed 0.43% to $382.47, and the Invesco QQQ Trust QQQ rose 0.64% to $266.16, according to Benzinga Pro data.

On the economic front, the Mortgage Bankers’ Association will release its mortgage application volume index at 7 a.m. EST. The week-over-week change was 0.9% in the previous reporting week.

The Redbook index, a sales-weighted index of year-over-year same-sales growth in a sample of large U.S. general merchandise retailers, is scheduled to be released at 8:55 a.m. EST.

At 10 a.m. EST, the Institute for Supply Management’s U.S. manufacturing purchasing managers’ index is due. Economists, on average, expect the index to edge down from 49 in November to 48.5 in December.

The Federal Reserve is scheduled to release the minutes of the December monetary policy setting meeting at 2 p.m. ET. The central bank slowed the pace of its rate hikes from 75 basis points to 50 points at the meeting and also signaled its intention to assess the cumulative impact of its recent hikes.

Stocks In Focus:

  • Tesla Inc. TSLA climbed 2.20% in premarket trading, recovering from the previous session’s 12%+ plunge.
  • Apple Inc. AAPL also headed higher after Tuesday’s 3.74% drop.
  • Rivian Automotive Inc. RIVN rose over 1% after reporting full-year production that missed expectations.
  • Microsoft Corp. MSFT fell about 2%; a report suggested the company is working on launching AI-powered Bing search engine.
  • Chinese stocks Alibaba Group Holding Limited BABA, JD, NetEase Inc. NTES and Pinduoduo Inc. PDD were all solidly higher.

Commodities, Other Global Markets:

Crude oil futures extended their slide, with a barrel of WTI-grade crude oil slipping 2.11% to $75.31. On Tuesday, oil fell a steeper 4.20%. Treasury yields continued to edge down, reflecting expectations of a slowdown in economic conditions. The benchmark 10-year Treasury note yielded 3.70%, down 0.092% points.

Asia-Pacific stocks closed Wednesday’s session on a mixed note, as Hong Kong’s Hang Seng Index, Australia’s All Ordinaries and the New Zealand NZ50 Average closed notably higher. On the other hand, the Japanese, Indonesian and Indian markets fell sharply.

The European markets are firmer for the third straight session on Wednesday, encouraged by positive domestic data on inflation and the manufacturing sector.

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