We said yesterday that “game time” trading decisions would drive an ebb and flow in the major indices, and that is exactly what happened. There was a lot of back and forth behavior tied largely to interest rate angst.
Volatility picked up in the afternoon trade after Fed Chair Powell acknowledged recent inflation data has shown a lack of progress in returning inflation to the Fed’s 2% goal and that it is appropriate to give restrictive policy more time to work.
The translation of that view is that a rate cut in June, and even July, is likely off the table for now in the Fed’s mind. The thing is, that perspective had already been on the market’s mind, evidenced by the shift seen in the fed funds futures market. Granted there was a little shock value at first in hearing Fed Chair Powell imply as much in outward remarks, but ultimately there wasn’t anything shocking in what he said.
Fittingly, after the afternoon ebb and flow, the S&P 500 settled the day relatively close to where it was trading just before the Fed Chair said what he said.
There is a modicum of buy-the-dip interest this morning. Currently, the S&P 500 futures are up 19 points and are trading 0.4% above fair value, the Nasdaq 100 futures are up 51 points and are trading 0.4% above fair value, and the Dow Jones Industrial Average futures are up 25 points and are trading 0.1% above fair value.
Some rebound action in the mega-cap stocks has underpinned the futures trade along with some better-than-expected earnings results from United Airlines (UAL), which is up 6.5% after its report, and some pleasing trial data from Eli Lilly (LLY) that showed Tirzepatide reduced sleep apnea severity by up to nearly two-thirds in adults with obstructive sleep apnea and obesity.
Similar good fortune has not greeted Dow component Travelers (TRV) after its weaker-than-expected earnings report nor leading regional bank U.S. Bancorp (USB), which disappointed investors with a reduced net interest income outlook for FY24. TRV is down 5.0% and USB is down 3.7%.
At the moment, there just isn’t a lot of conviction on the part of buyers in general. Worries about the geopolitical scene, particularly in the Middle East, continue to fester, and market participants continue to wait on the earnings results from the “biggies” that begin next week with Tesla (TSLA), Microsoft (MSFT), Alphabet (GOOG), and Meta Platforms (META) slated to report.
Tesla for its part is making news today with a filing that indicates it will be asking shareholders to vote again on Elon Musk’s pay package.
Separately, the Treasury market has been an agitating factor for stocks. The 2-yr note yield keeps knocking on the door of 5.00% with expected rate cuts falling by the wayside, and the 10-yr note yield, up 45 basis points this month, sits at 4.65% following some sticky inflation readings.
News that the Biden Administration is proposing a tripling of tariffs on Chinese imports of steel and aluminum is apt to feed into the market’s angst about sticky inflation.
That angst isn’t registering sharply in the Treasury market or the equity futures market this morning, but it’s there, which is why participants won’t be as interested in how these markets start trading today as they will be in how they close.
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Originally Posted April 17, 2024 – Eyes on the close
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