Nasdaq, S&P 500 Futures Edge Up As Inflation Jitters Keep Sentiment Muted

Zinger Key Points
  • Fed officials hinted at Thursday’s inflation data release having a bearing on February rate decision.
  • Inflation may not ease notably in 2023 but the Fed will still cut rates due to pricing pressure hurting growth, Peter Schiff says.

The index futures were modestly higher on Wednesday, suggesting that the market may fight to retain the upward momentum it picked up since the start of 2023. Inflation watch, however, could induce nervousness among traders, prompting some to step to the sidelines.

What Happened: On Tuesday, the major averages advanced in relief over Federal Reserve Chair Jerome Powell's lack of reference to the fed funds rate at a public appearance. The major averages opened on a slightly negative note and experienced some volatility in early trading.

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Stocks launched into a sharp rally in late morning trading and advanced through the session before ending just off the highs of the session. Tuesday’s gains took the averages to their highest levels since mid-December 2022.

Most sectors, with the exception of consumer staple stocks, advanced in the session. Consumer discretionary, material and communication services stocks were the best performers.

U.S. Indices' Performance On Tuesday
Index Performance (+/-)   Value
Nasdaq Composite +1.01%   10,742.63
S&P 500 Index +0.70%   3,919.25
Dow Industrials +0.56%   33,704.10

The next big resistance level for the S&P 500 Index is 4,000, said Liz Young, head Of Investment Management at SoFi. The market strategist pointed out that the index is now staring at both the year-long downtrend and the 200-day moving average.

If the Fed is data dependent, and each meeting’s decision is based on the current data, the market is even more so, said Quincy Krosby, chief global strategist at LPL Financial.

Thursday’s consumer price inflation is more important for the markets than the current week’s ongoing “staged Fed message,” he added.

Consumer price inflation has been showing signs of cooling since October. For December, economists expect a 0.1% month-over-month dip in the headline CPI and a 0.3% increase in core CPI, which excludes food and energy. This compares to the November readings of 0.1% and 0.2% increases, respectively. The year-over-year change in the CPI is estimated at 6.5%, down from 7.1% in November. The core annual rate is also expected to tick down to 6.5%.

Gold bull Peter Schiff said in a recent tweet that it is not the lower inflation that will drive the Fed toward rate cuts but the impact of higher inflation. He expects the Fed to start cutting rates this year.

Brad McMillan, chief investment officer at Commonwealth Financial Network, said, “The rapid increases in interest rates, the most damaging factor of 2022, are likely behind us.”

The analyst expects the labor market strength to continue to support the economy, making any potential recession fairly mild. “And stock valuations are now lower and more reasonable than they were last year,” he added.

Here’s a peek into index futures trading:

U.S. Futures' Performance On Wednesday
Index Performance (+/-)  
Nasdaq 100 Futures +0.14%  
S&P 500 Futures +0.18%  
Dow Futures +0.20%  
R2K Futures +0.47%  

In premarket trading on Wednesday, the SPDR S&P 500 ETF Trust SPY advanced 0.14% to $391.12, and the Invesco QQQ Trust QQQ rose 0.10% to $273.10, according to Benzinga Pro data.

On the economic front, the Mortgage Bankers Association is scheduled to release the weekly mortgage applications volume at 7 a.m. EST. Data for the week ended Dec. 30 showed mortgage loan application volume falling 13.2% from two weeks earlier.

The Energy Information Administration is scheduled to release its oil inventory report for the week that ended Jan. 6 at 10:30 a.m. EST.

Stocks In Focus:

  • Tesla Inc. TSLA was cautiously higher in premarket trading after Tuesday’s reversal.
  • World Wrestling Entertainment Inc. WWE rose over 7% after reports said the company has sold itself to the Saudi Arabia Public Investment Fund.
  • CureVac N.V. CVAC climbed over 8% on follow-through buying. Since the company announced positive trial results for its flu and COVID-19 vaccine on Friday, it has gained about 97%.
  • Advanced Micro Devices Inc. AMD and Nvidia Corp. NVDA could see some activity after a KeyBanc Capital Markets analyst downwardly adjusted their price targets.
  • Rivian Automotive Inc. RIVN rose 1% despite Goldman reportedly reducing the price target significantly.
  • KB Home Inc. KBH could also be in focus as the homebuilder is scheduled to report its quarterly results after the market close.

Commodities, Other Global Markets:

After slipping modestly on Tuesday, crude oil futures have resumed the climb. The WTI-grade crude oil traded above $75-a-barrel level.

The benchmark 10-year U.S. treasury note was fetching a yield of 3.571%, down 0.048 points. The metric has been on a downtrend since the start of the year amid recession fears.

The Asia-Pacific markets closed mixed yet again on Wednesday. Japan’s Nikkei 225 average was the best-performing index among the major markets in the region as exporters rose in reaction to the weakening of the yen. The Australian market also saw noteworthy gains.

On the other hand, the Chinese, Taiwanese, Indian, Indonesian and New Zealand markets moved to the downside.

The mixed sentiment reflected apprehensions regarding the U.S. inflation data, which offset the positivity triggered by the stronger close of Wall Street stocks overnight.

European stocks opened higher and the buying accelerated further in early trading.

Read Next: Big Banks To Kick Off Q4 Earnings Season Amid Expectations For First S&P 500 Profit Decline In More Than 2 Years

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Posted In: EarningsNewsFuturesPreviewsTop StoriesEconomicsFederal ReservePre-Market OutlookMarketsTrading Ideasconsumer price inflationFed Funds RateInflationJerome PowellNASDAQPeter SchiffS&P 500
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