After Tuesday’s relief rally that came after investors digested February inflation data, the mood has reverted to caution on Wall Street. Stock futures point to a flattish open on Wednesday. The absence of any major catalysts could increase indecision although traders may look forward to the reception to the 30-year bond auction, given the slight recovery in bond yields in recent sessions.
Strategists, meanwhile, are optimistic that the market would preserve the upward momentum, baking in expectations that the Federal Reserve has to pause sometime this year. Between now and the upcoming Wednesday’s Fed decision, stocks could mostly tread water before making a decisive move in either direction.
Cues From Previous Session:
U.S. stocks ended Tuesday’s session on an upbeat note as traders ignored the message relayed by the February inflation and the rise in bond yields. The major averages opened higher after consumer price inflation came in hotter than expected. Selling emerged immediately after, dragging the indices into negative territory in early trading.
The averages staged a remarkable recovery as commentary from economists after the data release suggested that the downward trend in underlying inflation is intact. After a V-shaped recovery in late-morning trading, they moved roughly sideways before ending notably higher.
The broader S&P 500 Index closed at a fresh record after hitting an intraday high earlier in the session, while the Nasdaq Composite and the Dow Industrials closed short of their respective records.
“Hopes remain that even though we continue to be far from the Fed’s 2% target they will still make cuts, believing that a lower Fed Funds rate will still keep sufficient pressure on inflation to move eventually towards 2%,” said fund manager Louis Navellier.
“Behind the curtain, there is undeniable political pressure to lower rates given soaring government debt levels, a meaningful part that is on the short end of the yield curve.”
Eight of the 11 S&P sector classes ended higher, with IT and communication services stocks leading the way higher. Energy, material and real estate stocks closed lower for the day.
| Index | Performance (+/-) | Value |
| Nasdaq Composite | +1.54% | 16,265.64 |
| S&P 500 Index | +1.12% | 5,175.27 |
| Dow Industrials | +0.61% | 39,005.49 |
| Russell 2000 | -0.02% | 2,065.48 |
Analyst Color:
An analyst on Tuesday said earnings growth needs to be robust to justify the market strength. “Earnings growth will need to be robust considering S&P 500 valuations are approaching the levels we saw at the beginning of 2022 when the S&P 500 was trading at 21.4x forward earnings,” said Rob Swanke, Senior Equity Strategist at Commonwealth Financial Network.
“Now, we are seeing the S&P 500 trade at 20.7x forward earnings, although we're in a much higher interest rate environment, making the hurdle a bit higher.”
While conceding that valuations are high, the analyst said he believes companies were still in a good place and continue to see an improving economic picture. “Even if we just match earnings expectations, equity markets can rise as valuations come down,” he said.
Swanke expects the companies that invested over the past few years due to a tight labor market to see increasing productivity, even without accounting for possible future benefits of AI.
Futures Today
Futures Performance On Wednesday ( as of 6 a.m. EDT)
| Futures | Performance (+/-) |
| Nasdaq 100 | -0.11% |
| S&P 500 | +0.01% |
| Dow | +0.07% |
| R2K | -0.03% |
In premarket trading on Wednesday, the SPDR S&P 500 ETF Trust SPY rose 0.04% to $516.98, while the Invesco QQQ ETF QQQ fell 0.09% to $443.24, according to Benzinga Pro data.
Upcoming Economic Data:
The Mortgage Bankers’ Association is due to release the weekly mortgage application volume data at 7 a.m. EDT. Data for the previous reporting week (week ended March 1) showed a 9.7% week-over-week increase in mortgage application volume. The increase was supported by the slight decrease in the 30-year fixed mortgage rate, MBA said.
The Energy Information Administration will release its customary weekly petroleum status report at 10:30 a.m. EDT.
The Treasury is due to auction 30-year bonds at 1 p.m. EDT.
See Also: Best Futures Brokers
Stocks In Focus:
Tesla, Inc. TSLA fell over 1.50% in premarket trading amid ongoing concerns about its first-quarter deliveries.
Dollar Tree, Inc. DLTR and Williams-Sonoma, Inc. WSMare among the companies due to release their quarterly results before the market opens. Those reporting after the close include SentinelOne, Inc. S and Lennar Corp. LEN.
Commodities, Bonds, Other Global Equity Markets:
Crude oil futures rose 1.22% to $78.51 in premarket trading, reversing some of Tuesday’s 0.47% slide, and gold futures were down for a second straight day. An ounce of gold traded down marginally at $2,164.35, off the intra-day high of $2,203 hit on Friday.
The yield on the 10-year Treasury bond rose slightly to 4.161%. Bitcoin BTC/USD has taken off yet again and traded around $73K+ levels.
The major Asian markets ended Wednesday’s session on a mixed note following the U.S. inflation data. While Japan, China, Hong Kong, India, Indonesia and New Zealand retreated, the rest of the major markets in the region gained ground. Sentiment in Europe was mostly positive, with the Euro STOXX 50 Index up 0.40% in early trading. Positive monthly U.K. GDP data lent support to stocks in the region.
Read Next: Gold Bull Peter Schiff Thinks We Should Brace For Double-Digit Inflation Rate Because Fed’s Powell ‘Can’t Walk The Talk’
This illustration was generated using artificial intelligence via MidJourney.
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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