US Stocks Listless As Jerome Powell Heads To Capitol Hill: Analyst Sees Potential For Double-Digit Returns Despite Challenging Rate Outlook

Trading in the U.S. index futures suggests the markets may start Tuesday’s session modestly higher ahead of the first day of Fed Chair Jerome Powell’s two-day Congressional testimony.

Cues From Monday’s Trading:

On Monday, U.S. stocks squandered much of their gains and closed on a narrowly mixed note, as some stock-specific moves, involving companies such as Apple Inc. AAPL, helped offset nervousness over Powell’s testimony.

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The major averages opened higher and rose further until early afternoon trading before giving back their gains. The Dow Industrials and the S&P 500 Index ended marginally to modestly higher, while the Nasdaq Composite closed modestly lower.

Technology stocks were the best performers of the session, while material, real estate and consumer discretionary stocks moved to the downside.

Analyst Color:

“If the economy can break the back of inflation without a deep and prolonged recession, investors will likely experience markets that could return to lower volatility and improved conditions for both bond and equity investors,” said LPL Financial chief economist Jeffrey Roach.

“Hitting that stride may not come until the Fed’s rate hiking campaign is closer to its end, but we expect stock investors to benefit once it does,” hee added.

Despite higher interest rates challenging stock valuations and potentially pushing gains further out in 2023, the analyst sees solid potential for double-digit returns for stocks this year.

Roach recommends a slight overweight allocation to equities and favors value over growth, small caps over large caps, and the energy, healthcare, and industrials sectors.

Futures Today

In premarket trading on Tuesday, the SPDR S&P 500 ETF Trust SPY rose 0.21% to $405.30 and the Invesco QQQ Trust QQQ gained 0.36% to $301.10, according to Benzinga Pro data.

Upcoming Economic Data:

Powell is scheduled to begin his testimony before the Senate Banking Committee at 10 a.m. EST. Former Treasury Secretary Larry Summers said last week the Fed chair has an opportunity to reset expectations at the hearings to “address the growing credibility problems that the Fed has.”'

The Commerce Department is due to release the wholesale inventories report for January at 10 a.m. EST. Economists, on average, expect wholesale inventories to have edged down 0.4% month-over-month following a 0.1% rise in December. Wholesale sales may have fallen at a slower rate of 0.3% in January.

The Energy Information Administration will release its short-term energy outlook report at 12 p.m. EST.

The Treasury will auction 3-year notes at 1 p.m. EST.

The Federal Reserve is scheduled to release its monthly report on outstanding consumer credit at 3 a.m. EST. The consensus estimate calls for an increase in the metric from $11.56 billion in December to $20 billion in January.

Stocks In Focus:

• Rivian Automotive Inc. shares shed over 5% in premarket trading after the company announced a $1.3 billion green note offering.
• Nutanix Inc. NTNX slumped over 8% in reaction to its quarterly results.
• Dick’s Sporting Goods Inc. DKS, Casey’s General Stores Inc. CASY and Crowdstrike Holdings Inc. CRWD are among the companies due to report their quarterly results on Tuesday.

Top Analysts’ Call

• Cisco Systems Inc. CSCO: JPMorgan initiates with Neutral rating.
• Juniper Networks Inc. JNP: JPMorgan initiates with Buy rating.
• Luminar Technologies Inc. LAZR: JPMorgan maintains Overweight rating and increases price target from $15 to $20.

Commodities, Bonds, Other Global Equity Markets:

Crude oil futures, which rallied 1.41% and topped $80-a-barrel on Monday, pulled back about 0.19% in early European trading.

The 10-year Treasury note yield remained below the 4% level and was at 3.934%,

Most Asian markets closed in the green on Tuesday, encouraged by the resilience shown by U.S. stocks. The Reserve Bank of Australia raised its key interest rate by an expected 25 basis points, sending the All Ordinaries higher. On the other hand, the Chinese and Indonesian markets declined, while the Indian market was closed for a public holiday.

European stocks were seen treading with caution in late-morning deals on Tuesday.

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