U.S. stock futures were little changed early Monday following the strongest weekly rally this year for the major indexes. Traders are gearing up for key speeches from Federal Reserve officials that could provide clues about the future path of interest rate hikes.
Dow Jones Industrial Average futures edged up 0.07%, while S&P 500 futures ticked 0.03% higher. Nasdaq 100 futures hovered just below the flatline, up 0.01%.
All three major averages are coming off their biggest weekly gains since late 2022 after a softer-than-expected October jobs report fueled hopes that the Fed may slow the pace of rate increases soon.
The Dow soared 5.07% last week for its best weekly performance since October. The blue-chip index finished Friday’s session at 34,061.32.
The technology-heavy Nasdaq Composite led the charge higher with a weekly gain of 6.61%, ending Friday’s trading at 13,478.28. That marked the index’s strongest week since November 2022.
The S&P 500 also surged 5.85% last week, its best week since November. The broad index closed out Friday’s trading at 4,358.34.
Now all eyes turn to commentary from Fed officials including Chair Jerome Powell, who is slated to speak Wednesday. Other central bank leaders delivering remarks this week include New York Fed President John Williams on Tuesday and Vice Chair Lael Brainard on Wednesday.
If their statements reaffirm expectations for smaller rate hikes ahead, stocks could see additional gains after October’s powerful rally. However, any surprisingly aggressive signals on policy could derail the momentum.
November Seasonality Could Boost Stocks Further
Beyond deciphering the Fed’s next moves, stocks historically tend to see a seasonal tailwind in November.
According to LPL Financial’s Adam Turnquist, November has been the most bullish month for the S&P 500 since 1950. The benchmark index has posted average returns of nearly 7% from November through April over that span.
This seasonal tendency kicks in as holiday spending lifts consumer sentiment, and the turning of the calendar sparks optimism among investors.
Midterm elections also eliminate some political uncertainty in November, while the Fed tends to pause rate hikes toward year-end after front-loading increases.
With inflation showing early signs of easing and markets anticipating a less aggressive Fed, stocks could see typical seasonal strength heading into year-end. However, risks including inflation, geopolitics, and slowing growth linger.
Energy Stocks Surge as Oil Rebounds
Among the top-performing pockets of the market last week, energy stocks rallied sharply as oil prices bounced.
The Energy Select Sector SPDR ETF (XLE) jumped 9% for the week, far outpacing other sectors. Top-gaining energy stocks included Marathon Oil (MRO), APA Corp. (APA), and Occidental Petroleum (OXY), Zacks data show.
Oil prices climbed nearly 6% on the week, with U.S. crude settling Friday at $92.61 per barrel after topping $93 earlier. Improving economic data from China raised optimism about demand.
With crude regaining momentum above $90, oversold energy producers and explorers saw extra room to run. However, the sector remains vulnerable to any renewed concerns about slowing global growth weighing on consumption.
Berkshire Results Confirm Resilient Spending
Earnings season is winding down after approximately 400 S&P 500 companies have reported Q3 results. While overall earnings growth is cooling, resilient U.S. consumer spending has been a bright spot. Warren Buffett’s Berkshire Hathaway posted operating earnings of $10.76 billion last quarter, up nearly 41% year-over-year. The conglomerate also held a record $157.2 billion of cash, confirming its fortress-like financial position.
Berkshire’s wide array of subsidiaries in insurance, energy, manufacturing, and retailing highlights that household budgets have remained sturdy despite high inflation and rising rates.
However, many multinationals have cited weakening demand trends, especially for housing and durable goods. While consumers are still spending for now, economic data suggests slowing activity as higher costs bite.
Investors will gain more insight into consumer health this week as Disney, Wynn Resorts, DR Horton, and Occidental Petroleum report earnings.
The Path Ahead Remains Highly Uncertain
Even after rocketing over 5% last week, the S&P 500 remains deeply entrenched in a bear market with a 2022 loss of around 22%. While stocks look oversold and could tack on more gains, the macroeconomic backdrop remains challenging.
The Fed has lifted rates aggressively to fight troubling inflation, but the full impact of tighter policy has yet to flow through the economy. Risks of a recession in 2023 are building as borrowing costs filter through to consumers and businesses.
Policymakers have signaled they will keep rates elevated for some time to ensure inflation is moving back decisively toward the 2% target. This outlook presents an ongoing headwind for equity valuations.
Moreover, risks around geopolitics, supply chains, and slowing global growth persist. The path ahead is likely to stay volatile until inflation shows clearer signs of abating.
In these uncertain times, maintaining discipline and focusing on high-quality companies with solid fundamentals is key. While stocks could drift higher in the near term, significant risks remain that could spark renewed market turbulence.