Zinger Key Points
- January's stock market rally is predicated on hopes of a Fed pause and potentially a pivot.
- Comerica analyst says March might see the final rate hike in the current tightening cycle.
Trading in the index futures points to a nervous start by Wall Street on Wednesday, reflecting the skittish mood of the market. Earnings could drive sentiment, given the lack of any first-tier economic event/data.
Cues From Tuesday’s Trading:
Fed Chair Jerome Powell turned out to be the knight in shining armor for the market on Tuesday with his comments that were interpreted as dovish by traders.
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The major averages opened the session notably lower after Minneapolis Fed President Neel Kashkari spooked the market with his view that more rate hikes may be needed. After moving sideways until Powell’s speech, the indices spiked for a while before giving back their gains and plunging to their intraday lows. Renewed buying emerged in late afternoon trading, sending stocks solidly higher.
The Nasdaq Composite and the S&P 500 Indices broke a two-session losing streak, while the Dow Industrials rose for the first time in four sessions.
Energy, communication services, technology and material stocks moved strongly to the upside, while defensive consumer staple and real estate stocks came under modest selling pressure.
| Index | Performance (+/-) | Value | |
|---|---|---|---|
| Nasdaq Composite | +1.90% | 12,113.79 | |
| S&P 500 Index | +1.29% | 4,164.00 | |
| Dow Industrials | +0.78% | 34,156.69 |
Analyst Color:
Powell’s comments on Tuesday suggest the Fed will likely raise the fed funds rate by a smaller quarter points each at the March and May meetings, although data will determine the final decision, said Bill Adams, chief economist at Comerica Bank.
“Comerica’s interest rate forecast will continue to show the Fed making its final rate hike in March and ending the current hiking cycle at a peak of 4.75%-to-5.00%, but a final hike in May would not at all be a surprise,” he added.
Commenting on the forward market trajectory, Commonwealth Financial Network’s chief investment officer Brad MacMillan said the strong January reflected real improvements in multiple areas.
“Looking forward, we should see the same kind of economic resilience over time as those improvements continue,” he said.
Futures Today
| Index | Performance (+/-) | |
|---|---|---|
| Nasdaq 100 Futures | -0.23% | |
| S&P 500 Futures | -0.32% | |
| Dow Futures | -0.21% | |
| R2K Futures | -0.64% |
In premarket trading on Wednesday, the SPDR S&P 500 ETF Trust SPY receded 0.29%, to $413.97, and the Invesco QQQ Trust QQQ fell 0.22%, to $309.20, according to Benzinga Pro data.
Upcoming Economic Data:
The Mortgage Bankers Association will release the weekly mortgage applications volume at 7 a.m. EST. The measure fell 7% week-over-week in the week ended Jan. 27, while mortgage rates declined for a fourth straight week.
The Commerce Department is scheduled to release its wholesale inventories report for December at 10 a.m. EST. Wholesale inventories are expected to edge up 0.1% month-over-month in December, the same pace in November, while wholesale trade sales may have fallen 0.3%, slower than the 0.6% drop in the previous month.
Fed Vice Chair of Supervision Michael Barr will make a public appearance at 10 a.m. EST.
The Energy Information Administration will release its customary weekly oil inventory report at 10:30 a.m. EST.
Stocks In Focus:
- Cybersecurity company Fortinet Inc. FTNT rallied over 11% in premarket trading following its fourth-quarter beat.
- Enphase Energy Inc. ENPH climbed over 10% after the company reported better-than-expected fourth-quarter results.
- New Relic Inc. NEWR and H&R Block Inc. HRB also rallied on earnings.
- Chipotle Mexican Grill Inc. CMG and Lumen Technologies Inc. LUMN plunged following the release of their quarterly results.
- CVS Health Corp. CVS, Dominion Energy Inc. D, Fox Corp. FOXA FOX, Performance Food Group Co. PFGC, Yum Brands Inc. YUM and Uber Technologies Inc. UBER are among the major companies reporting before the market open.
- Notable companies reporting after the close include Mattel Inc. MAT, O’Reilly Automotive Inc. ORLY, Walt Disney Co. DIS, MGM Resorts International MGM and Wynn Resorts Limited WYNN.
Top Analysts’ Call
- American Express Co. AXP: Morgan Stanley upgrades from Equal-Weight to Overweight.
- Discover Financial Services DFS: Morgan Stanley downgrades from Overweight to Equal-Weight.
- Walmart Inc. WMT: Barclays initiated coverage with an Overweight rating and $159 price target.
- Microsoft Corp. MSFT: Piper Sandler maintains rating at Overweight and raises price target from $247 to $290.
Commodities, Bonds, Other Global Equity Markets:
Crude oil futures extended their gains for a third straight session and traded up over 1% at $77.97 a barrel on Wednesday. Meanwhile, the 10-year U.S. Treasury note yield held above the 3.6% mark.
The Asia-Pacific markets ended Wednesday’s session mixed despite the encouraging lead from Wall Street overnight. The Taiwanese and South Korean markets led the gains, while the Japanese, Hong Kong, Chinese and Singaporean markets declined in the session.
European stocks were advancing strongly on Wednesday following their recent losses.
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