Key Indexes Fall In Premarket Action

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(Tuesday Market Open) Stock futures slid in Tuesday’s premarket trading to open a shortened trading week amid plenty of overnight news in global inflation, Fed chatter and rising oil prices. After the open, investors will get new data on consumer confidence and home prices. It’s unclear whether last week’s relief rally that broke a nearly two-month decline in major U.S. stock indexes may continue.  

Potential Market Movers 

Overnight, oil prices jumped as European Union (EU) leaders reached an agreement to ban 90% of Russian crude oil by the end of this year as war in Ukraine continues. The agreement resolved a deadlock after earlier objections by Hungary. An estimated 36% of the EU’s oil imports come from Russia.

Also, Shanghai’s vice mayor announced over the weekend the city would loosen of some its COVID-19 restrictions this week. China’s strict pandemic lockdowns have moderated global oil prices in recent weeks.

However, European stocks lost ground with the Dax falling nearly 0.5%. Meanwhile, the European Union announced that Eurozone inflation reached a record level of 8.1% in May amid fast-rising energy and food costs related in part to the Russia-Ukraine war.  European prices are rising well above market forecasts and four times higher than the ECB target of 2%. The central bank is expected to wrap up large-scale asset purchases and confirm plans next week to raise interest rates in July.

Meanwhile, last night, the White House announced that President Biden and Fed Chairman Jerome Powell would meet later today as the Fed tries to get inflation under control against rate pressures on consumers, housing and potentially the job market.

Fed Governor Christopher Waller may have provided some headwinds for that conversation during a speech in Germany yesterday. During a scheduled appearance in Frankfurt, Waller said he expects 50-basis-point interest rate hikes likely to continue for the rest of the year until inflation is curbed, adding that he would support hikes above the “neutral” level of 2.5%. That could be another way of Waller saying he and others see rates going up at least another two percentage points. 

Yet some believe that the Fed’s effort to broadcast its rate plans far and wide may take some of the worries out of this Friday’s employment numbers for May. Analysts are expecting another solid rise in nonfarm payrolls—estimated to be in the low-300,000 range, lower than the 400,000-plus increases of the past two months. Most of the interest may move to the Job Openings and Labor Turnover (JOLTS) to see how wide the gap remains between job openings and workers willing to apply.

Before the market open, S&P 500, Nasdaq and DJIA futures were only off fractionally, narrowing overnight losses.

Among stocks that could make news today:

• Yamana Gold AUY gained 14.9% in premarket trading after agreeing to be acquired by Gold Fields GFI in an all-stock deal valued at $6.7 billion.
• Unilever UL gained 6.4% in premarket trading after the consumer products company added activist investor Nelson Peltz to its board. Peltz’s Trian Fund Management already holds 1.5% of Unilever.
• Hewlett-Packard HPQ lost 0.11% and Salesforce CRM shares decreased 0.47% in premarket trading ahead of earnings announcements.

Reviewing the Market Minutes

 Investors bid a not-so-fond farewell to a historic seven-week losing streak Friday as the Federal Reserve’s favorite inflation metric came much as expected before the three-day holiday weekend. All sectors gained during the session.  

The S&P 500 (SPX), which dipped into bear market territory back on May 20, gained 2.47% by the close, and with the Dow Jones Industrial Average’s ($DJI) 1.8% gain on Friday, both indexes finished their best week since November 2020. The comeback by several major technology stocks lifted the  Nasdaq Composite ($COMP) 3.3% to finish strong after week of largely positive reports on inflation and retail sales.

As of Friday’s close, the Nasdaq was about 23% below its all-time high, while the S&P 500 and Dow are respectively off 13% and 9% from their records.

Technology stocks moved the S&P 500 and the Nasdaq more than 6% upward for the whole week.

Apple AAPL gained 4.08% at the close despite news it plans to cut phone production in response to manufacturing difficulties in China. Microsoft MSFT, gained 2.76%, Alphabet GOOG added 4.16% and Amazon AMZN finished up 3.66% on the day. As founder Elon Musk stayed in the news with fresh details on financing his bid for Twitter and views on growth stocks, Tesla finished the day up 7.33%.

After sticking with earlier rate hike predictions in the latest Federal Open Market Committee minutes released earlier last week, April’s personal consumption expenditure index, known as Fed’s favorite inflation indicator, met expectations of a 4.9% increase in core inflation (separate of food and energy), down from a previous 5.2%. The overall number showed inflation rose 6.3% year over year in April, down from 6.6% in March.

The advance was so broad, many investors seemed to ignore Friday’s release of the University of Michigan final consumer sentiment reading for May, which missed estimates and closed at its lowest level in more than 10 years. 

CHART OF THE DAY: TAPPING OUT? The U.S. Bureau of Economic Analysis’ April report on personal savings (PSAVERT) as a percentage of disposable income is now at the lowest rate since the Great Recession. Data Sources: U.S. Bureau of Economic Analysis retrieved from FRED, Federal Reserve Bank of St. Louis. FRED® is a registered trademark of the Federal Reserve Bank of St. Louis. The Federal Reserve Bank of St. Louis does not sponsor or endorse and is not affiliated with TD Ameritrade. Chart source: The thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

Three Things to Watch

That Was Quick: During 2020 and most of 2021, COVID-19 work-at-home orders and federal stimulus support helped many consumers put money in the bank. Now comes the withdrawal. On Friday, the U.S. Bureau of Economic Analysis reported the nation’s personal savings rate was just 4.4% in April, the lowest rate since 2008 and now a fraction of the record-breaking 33.8% savings rate reported in April 2020. The data shows consumers were spending more on goods and services than they were before lockdown. And that includes adjustment for inflation.

Home Prices Softening? A Redfin study released Friday said nearly 1 in 5 home sellers dropped prices over the four-week period ending May 22, the highest percentage of price decreases for homes on the market since October 2019. The real estate brokerage said metropolitan areas that saw the biggest influx of incoming residents during the first two years of COVID-19 are now among the top markets lowering prices. At the top of the list, Boise, Idaho; Cape Coral, Florida; and New Orleans.

Go, Maverick, Go: Amid all this uncertain news for household finances, many people are just getting out of the house. As the Washington Post reported over the weekend,  goods-heavy spending habits are clearly receding, and service-based spending is on the rise as summer travel and more face-to-face commerce returns for the warm months. “Staycation” activities such as eating at local restaurants and spending on local events closer to home may actually cut the stress on overheated global supply chains and give the Fed a tailwind as it tries to cool inflation. Speaking of tailwinds, ticket-buyers took a streaming break and helped “Top Gun: Maverick” stick a theaters-only landing with more than $150 million taken in at the box office over the Memorial Day weekend.

Maybe the economy just needs a little more fresh air—and some popcorn.

Notable Calendar Items

June 1: ISM Manufacturing Index, JOLTs Job Openings, and earnings from Hewlett Packard HPE, NetApp NTAP, and Chewy CHWY

June 2: Earnings from Broadcom CHWY, Lululemon LULU, and Hormel Foods HRL

June 3: Employment Situation Report, ISM Non-Manufacturing PMI and earnings from Crowdstrike CRWD and DocuSign DOCU

June 7: U.S. Trade Balance and earnings from J.M Smucker SJM, Verint Systems VRNT, and Cracker Barrel CBRL 

TD Ameritrade® commentary for educational purposes only. Member SIPC.

This post contains sponsored advertising content. This content is for informational purposes only and not intended to be investing advice.