US Stocks' Resilience Faces Test As Traders Await Flurry Of Economic Data: Fed May 'Surprise To The Upside' On Rates Again In 2023, Says Analyst

Zinger Key Points
  • Stocks have been resisting a sell-off even in the wake of strong data that points to more rate hikes.
  • Corporate earnings have largely been a bright spot, cushioning any potential slide.

The resilient market faces another test on Thursday, as traders get to digest another set of economic data and a few Fed speeches. The index futures pointed to a cautious start on Thursday.

Cues From Wednesday’s Trading:

U.S. stocks closed Wednesday’s session higher, encouraged by a stronger-than-expected retail sales report and a let-up in treasury yields.

The major averages opened Wednesday’s session lower and cut their losses over the course of the session. The Nasdaq Composite Index moved above the unchanged line in early afternoon trading and was seen flitting in and out of the changed line before moving decisively higher by around the mid-session.

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The Dow Industrials and the S&P 500 Index moved above the unchanged line in late trading. With Wednesday’s advance, the Nasdaq Composite and the S&P 500 Index are now at a one-week high.

Most sectors gained ground on Wednesday, led by communication services and consumer discretionary stocks. Energy and healthcare stocks, however, bucked the uptrend.


U.S. Indices' Performance On Wednesday
Index Performance (+/-)   Value
Nasdaq Composite +0.92%   12,070.59
S&P 500 Index +028%   4,147.60
Dow Industrials +0.11%   34,128.05

Analyst Color:

Following the better-than-expected January retail sales and strong industrial output, excluding the volatile utility output, analysts are confident of the economic outlook.

“The economy remains strong, unemployment is low and that is what is going to keep inflation elevated,” said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance. He is of the view that the Fed will need higher rates and hold them higher for longer than people expect.

“This is going to cause markets to go through some significant volatility as stock and bond markets are priced for benign scenarios and not the more difficult one that we are headed towards.”

Bill Adams, chief economist for Comerica Bank, echoed a similar sentiment. “These data collectively make the Fed more likely to surprise to the upside on interest rates again in 2023,” he said.

Futures Today

U.S. Futures' Performance On Thursday
Index Performance (+/-)  
Nasdaq 100 Futures -0.01%  
S&P 500 Futures -0.04%  
Dow Futures -0.06%  
R2K Futures -0.11%  

In premarket trading on Thursday, the SPDR S&P 500 ETF Trust SPY edged down 0.01%, to $413.94, and the Invesco QQQ Trust QQQ gained 0.10%, to $309.40, according to Benzinga Pro data.

Upcoming Economic Data:

A quartet of economic data is due at 8:30 a.m. EST. The Labor Department is due to release the weekly jobless claims data and producer price inflation data, while the Commerce Department is due to release its housing starts report for January. Additionally, the Philadelphia Federal Reserve is scheduled to release the results of its survey of business conditions.

The number of individuals claiming unemployment benefits is expected to come in at 200,000 in the week ended Feb. 11 compared to 196,000 for the previous week.

The January producer price inflation report is likely to show a 0.4% month-over-month increase following a 0.4% drop in the previous month. The year-over-year change is expected to show a decline from 6.2% to 5.4%. The core PPI may have seen a 0.3% monthly increase and a 4.9% annual growth. This compares to 0.1% and 5.5% increases, respectively, in December.

The Commerce Department’s housing starts report is expected to show a small decline in housing starts from 1.382 million units in December to 1.360 million units in January. Building permits, a measure of future housing activity, may have risen from 1.337 million units to 1.350 million units.

The diffusion index of business activity based on the Philadelphia Fed’s survey is expected to come in at -7.4 in February, a slight improvement from -8.9 in January. A negative reading indicates contracting activity.

Among the Fed speakers scheduled to speak for the day are:

  • Federal Open Market Committee member and Cleveland Fed President Loretta Mester: 8:45 a.m. EST and at 6 p.m. EST
  • FOMC member and St. Louis Fed President James Bullard: 1:30 p.m. EST
  • Fed Governor Lisa Cook: 4 p.m. EST

Stocks In Focus:

  • Twilio Inc. TWLO climbed about 14.50% in premarket trading following its forecast-beating fourth-quarter results.
  • Roku Inc. ROKU rose about 9.70% after the company said it would cut costs and suggested ad spending improvement.
  • Shares of electric vehicle battery maker Quantumscape Corp. QS and video-conferencing and enterprise communications software provider RingCentral Inc. RNG slumped about 15% and 11%, respectively, following their quarterly results.
  • Paramount Global PARA, Hasbro Inc. HAS and Hyatt Hotels Corp. H are among the notable companies reporting ahead of the market open.
  • Key companies reporting after the bell include DraftKings Inc. DKNG, BJ’s Restaurants Inc. BJRI and Applied Materials Inc. AMAT.

Top Analysts’ Call

  • Analog Devices Inc. ADI Raymond James maintains Outperform rating and hikes price target from $200 to $225.
  • Eli Lilly & Co. LLY: Societe Generale downgrades to Sell.
  • Fastly Inc. FSLY: DA Davidson upgrades from Neutral to Buy and raises price target from $8.50 to $17.

Commodities, Bonds, Other Global Equity Markets:

Crude oil futures declined for a fourth straight session on Thursday. In the European session, a barrel of WTI-grade crude oil traded down 0.39% at $78.28. Meanwhile, the yield on the benchmark 10-year U.S. Treasury hovered under 3.8%.

Most Asia-Pacific markets advanced on Thursday, tracking the positive close on Wall Street overnight. Traders in the region took heart from the robust economic data that vouched for the strength of the world’s largest economy. The Chinese, Indonesian and Malaysian markets, however, bucked the uptrend.

European stocks opened Thursday’s session solidly higher and traded with noteworthy gains in late morning trading, as earnings news lent support.

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Posted In: EarningsNewsFuturesPreviewsSmall CapTop StoriesEconomicsFederal ReservePre-Market OutlookMarketsTrading IdeasDow Industrialsfed ratesInflationJobless ClaimsNasdaq Composite IndexPhiladelphia Federal ReserveS&P 500 IndexUS Housing Starts
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