Monday, February 26, 2024

Fed Fright: S&P 500 Futures Fall as Rate Hike Plan Sparks Market Alarm

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Stocks fell on Thursday morning as investors braced for the final trading days of September, which is shaping up to be a weak month for markets.

The S&P 500 futures slid over 0.1% in early trading. Meanwhile, the Dow Jones Industrial Average futures were little changed, and the tech-heavy Nasdaq 100 futures dropped 0.3%.

The benchmark 10-year Treasury yield hit a fresh 15-year high, climbing above 4.6% for the first time since 2007. The 2-year Treasury yield held steady.

Shares of Micron Technology sank over 4% after the memory chip maker provided disappointing earnings guidance for the current quarter. Fitness company Peloton saw its stock jump 13% following the announcement of a 5-year partnership with apparel brand Lululemon to produce workout content.

The moves follow a mixed day on Wall Street Wednesday. While the S&P 500 and Nasdaq eked out slight gains of 0.02% and 0.2%, the Dow slid 0.2%. The ongoing surge in Treasury yields weighed on stocks, as the 10-year rate notched its highest level since 2007.

Friday marks the conclusion of what’s been a turbulent month and quarter for markets. As of Wednesday’s close, the Dow was on track to end September down 3.4% and the third quarter 2.5% lower. The S&P 500 was poised to finish September with a 5.2% drop and the quarter off by about 4%. The Nasdaq stared down a 6.7% September decline and 5% quarterly loss.

For the year, all three major indexes remain positive, underscoring the strength of the rally in the first half of 2022. However, rising rates, high inflation, and recession fears have recently rocked markets.

Investors are closely monitoring critical economic data, including Thursday’s reports on jobless claims, home sales, and GDP growth. Friday brings the personal consumption expenditures (PCE) price index reading, which is the Fed’s preferred gauge of inflation.

“The equity market needs reprieve on the rates front to move higher, and the Fed needs to downshift from their hawkish position for that to happen,” said Ross Mayfield, investment analyst at Baird. “PCE and other inflation data will be critical.”

Lawmakers in Washington are also working to avoid a government shutdown this weekend if they cannot reach a spending deal. A prolonged shutdown could delay key economic reports, adding to uncertainty.

Overall, stock investors remain cautious amid high volatility. Bullish investors are wary of overvalued stocks, while bears are hesitant to bet against a potential snap-back rally. Ongoing geopolitical tensions, rate hikes, and recession odds continue to cloud the outlook.

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GameStop Soars 10% as Ryan Cohen Named CEO

Retail investor favorite GameStop saw its shares climb 10% in premarket trading Thursday after the video game retailer appointed activist investor Ryan Cohen as its new CEO.

Cohen, who owns nearly 12% of GameStop, pushed for changes at the company after joining its board in 2021. GameStop fired previous CEO Matthew Furlong earlier this year as part of its revamp.

Cohen will not receive compensation for his roles as chief executive, president, and executive chairman. He aims to accelerate GameStop’s transition into a tech-driven business.

U.S. Investors Remain Paralyzed by Uncertainty

According to analyst Adam Crisafulli of Vital Knowledge, U.S. equity investors are stuck in neutral, with neither bulls nor bears making big moves.

While European data indicated slowing inflation on Thursday, other factors added to investor worries overnight. A U.S. government shutdown looms without a spending deal. Jobs data and inflation reports could also be delayed.

This uncertainty has paralyzed the markets. Bullish investors want lower prices before buying, while bears are hesitant to bet against a potential rally from oversold conditions.

European Markets Open Mixed After Down Week

European markets kicked off Thursday’s trading session mixed, reversing some of the negative momentum from earlier in the week.

The pan-European Stoxx 600 index edged up 0.1% after dropping over 1% on Wednesday. Sectors were split between gains and losses. Travel stocks fell 0.8%, while energy names rose 0.8%.

Investors remain cautious amid high inflation and rising recession odds. The mixed open followed a downward trend for European equities so far this week.

Australia Retail Sales Growth Slows in August

Retail sales in Australia rose just 0.2% in August compared to July, below economists’ forecasts of 0.3% growth. Sales reached A$35.4 billion for the month.

“Consumers continued to restrain their retail spending,” said Ben Dorber of the Australian Bureau of Statistics. “Historically low trend growth highlights just how much consumers have pulled back in response to cost-of-living pressures.”

The weaker-than-expected result aligns with a theme of slowing growth as high inflation and interest rate hikes reduce consumer demand across major economies. Australia’s retail sales were still 1.5% above August 2021 levels.

Sea Shares Jump After Indonesia Bans Social Commerce

Shares of Singapore-based Sea Limited, parent of e-commerce firm Shopee, closed 4.86% higher Wednesday. The gain came after Indonesia banned social media platforms like TikTok from enabling transactions.

Indonesia ordered TikTok to become a standalone e-commerce app within a week or cease operations. The policy aims to ensure fair competition, said the trade minister.

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As a TikTok rival, Shopee stands to benefit from restricted social commerce in Indonesia, its largest market. Sea’s stock has plunged 67% in 2022 as growth slows.

Toyota Plans Third India Plant to Boost Capacity

Shares of Toyota Motor dipped 0.27% Thursday despite reports the automaker plans to build a new factory in India, its first production expansion there in over a decade.

Sources told Reuters that Toyota aims to start with 80,000 to 120,000 units of annual capacity, eventually ramping up to around 200,000 vehicles. This could increase Toyota’s overall India manufacturing capacity by up to 30%.

Toyota also plans to launch a new SUV model in 2026 specifically for the Indian market that will be produced at the new plant, sources revealed. The additional capacity reflects India’s growing importance as an auto hub.

Proceed Cautiously in High Yield Bond Market, Warns Strategist

The high yield bond sector requires a selective approach in the current environment, advises Scott Wren of Wells Fargo.

With recession risk on the rise, Wren suggests avoiding overweight positions in high yield bonds. However, the highest quality BB-tier segment could offer opportunities.

“This segment has historically had lower default rates than the rest of its HY brethren,” Wren wrote. As the Fed maintains higher rates, sticking to the top tier of junk bonds could limit risks.

U.S. Stocks Set for Losing Week, Month and Quarter

U.S. stocks stare down losses for the week, month and quarter ahead of Friday’s trading session. Here’s where the major indexes stand with two trading days remaining:

Dow Jones

  • Week to date: -1.2%
  • Month to date: -3.4%
  • Quarter to date: -2.5%

S&P 500

  • Week to date: -1.1%
  • Month to date: -5.2%
  • Quarter to date: -4%

Nasdaq Composite

  • Week to date: -0.9%
  • Month to date: -6.7%
  • Quarter to date: -5%

Rising rates, recession odds, and global growth concerns have fueled extreme volatility in markets. Still, the major indexes are holding on to gains for the year after a robust rally in the first half of 2022.

Energy Top Performing S&P 500 Sector This Quarter

The energy sector is leading the market with a 13.5% gain in the third quarter. Surging oil prices have powered energy stocks higher.

Crude oil futures rose 32% in the quarter, the largest gain since Q1 2022. Marathon Petroleum, Halliburton, and Phillips 66 are top performers, each up roughly 30% in the period.

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Meanwhile, natural gas-focused stocks like Kinder Morgan and EQT have lagged as prices fall. But overall, energy stocks have benefited from tight supplies and robust demand.

Micron Falls After Weak Earnings Outlook, Peloton Jumps on Lululemon Deal

In after-hours trading, memory chip producer Micron Technology dropped 4% following disappointing quarterly guidance. Fitness firm Peloton surged 16% on a new 5-year deal with Lululemon to create workout content.

Earnings warnings from Micron and other tech firms reflect softening demand. Meanwhile, Peloton aims to boost subscriber growth through its partnership with the popular athletic apparel brand.

Stock Futures Edge Up Ahead of Jobs Data, Inflation Reads

U.S. stock futures traded slightly higher Thursday evening ahead of critical jobs and inflation data. S&P 500, Dow Jones and Nasdaq 100 futures all rose around 0.2% in early extended trading.

Investors await key economic reports on Thursday and Friday that could shed light on the health of the job market and price pressures. The data could influence the Federal Reserve’s future monetary policy plans.

Weekly jobless claims figures will provide the latest look at unemployment. Pending home sales data tracks the housing sector. GDP numbers offer an economic growth reading.

But the main event comes Friday with the personal consumption expenditures (PCE) index, the Fed’s preferred inflation barometer. An elevated reading could cement expectations for continued aggressive rate hikes.

With recession and inflation fears swirling, traders remain cautious overall. September is set to end as a painful month for stocks, capping a weak third quarter plagued by uncertainty.

Still, dip buyers may look to swoop in and pick up bargains after the recent selloff. Any signs of easing inflation could also boost sentiment.

Much depends on the tone from Fed officials. After hiking rates by 75 basis points this week, policymakers stressed their commitment to taming runaway prices through restrictive monetary policy.

But if upcoming data points to price relief, markets may welcome a pause in rate increases. For now, volatility remains high amid myriad uncertainties.

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Mezhar Alee
Mezhar Alee
Mezhar Alee is a prolific author who provides commentary and analysis on business, finance, politics, sports, and current events on his website Opportuneist. With over a decade of experience in journalism and blogging, Mezhar aims to deliver well-researched insights and thought-provoking perspectives on important local and global issues in society.

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