Trading in index futures suggests a negative opening on Wednesday as investors temper their expectations for cuts in the Fed funds rate and remain cautious about imminent tech earnings. Global cues may also weigh in, as Asian stocks saw a decline in response to fourth-quarter China GDP data. Fed speeches will once again be in the spotlight as traders digest comments from three officials on the monetary-policy setting committee.
The retail sales report and the Fed’s Beige Book could add some volatility to the market. Analysts are generally optimistic about the fourth-quarter season, citing a lowered bar and ongoing demand recovery. The upcoming tech earnings, starting next week, are expected to play a crucial role in determining the short-term market direction.
Cues From Tuesday’s Trading:
U.S. stocks closed in the red on Tuesday as concerns about interest rates and economic growth prompted a defensive stance among traders. The major indices opened significantly lower after regional manufacturing activity data fell sharply to the lowest level since May 2020. Mixed bank earnings and a further decline in Boeing Co.‘s BA shares also contributed to the negative sentiment.
Although the indices recovered some ground in late-morning trading, with the Nasdaq Composite briefly moving above the unchanged line, they retreated after a Fed official downplayed hopes of a rate cut.
Most S&P 500 sector stocks, except for IT stocks, ended the day lower, with notable declines in the energy, utility, material, industrial, and utility sectors.
US Index Performance On Tuesday
| Index | Performance (+/-) | Value |
| Nasdaq Composite | -0.19% | 14,944.35 |
| S&P 500 Index | -0.37% | 4,765.98 |
| Dow Industrials | -0.62% | 37,361.12 |
| Russell 2000 | -1.21% | 1,927.30 |
Analyst Color:
The fourth-quarter earnings season may not be a disappointment, said Jeffrey Buchbinder, chief equity strategist at LPL Financial. Delving into the reasons for the optimism, the analyst said the “bar has been lowered so much.”
Also, the analyst noted some of the disappointments were due to special bank charges and earnings from companies with November quarter-end were generally solid.
“This reporting period may lack the splashy ‘earnings recession over’ headlines we got last quarter, but it takes on added importance because it sets the tone for 2024,” Buchbinder said.
“After 2023 was a year in which improving valuations delivered strong gains, this year, earnings will likely have to do the heavy lifting.” The analyst sees the “Magnificent Seven” and margins as key to the fourth-quarter earnings season.
Wedbush analyst Daniel Ives said despite the valuation worries concerning tech stocks, he is optimistic about continued outperformance by the sector. “We believe Street numbers (and valuations) for 24/25 will move higher as this AI spending tidal wave hits the tech industry,” he said.
Despite positive expectations concerning earnings, Fund Strat’s Tom Lee said he sees a bumpy road for the market in the first half of the year. While remaining optimistic about the market performance for the full year, he calls for a 7% pullback by the S&P 500 Index after it makes a minor high in January.
Futures Today
Futures Performance On Wednesday
| Futures | Performance (+/-) |
| Nasdaq 100 | -0.44% |
| S&P 500 | -0.40% |
| Dow | -0.30% |
| R2K | -1.38% |
In premarket trading on Wednesday, the SPDR S&P 500 ETF Trust SPY fell 0.38% to $473.11 and the Invesco QQQ ETF QQQ declined 0.43% to $407.75, according to Benzinga Pro data.
Upcoming Economic Data:
The Commerce Department is scheduled to report its retail sales report for December at 8:30 a.m. ET. Economists, on average, expect a 0.4% month-over-month increase in retail sales for the month, faster than the 0.3% increase in November. Retail sales, excluding autos, may have increased at a 0.2% rate, the same pace as in the previous month.
The Labor Department is due to release its December import and export prices report at 8:30 a.m. ET. The consensus estimates call for a 0.5% month-over-month decline in import prices and a 0.6% drop in export prices in December. This compares to November’s 0.4% and 0.9% declines, respectively.
Fed Vice Chair for Supervision Michael Barr and Fed Governor Michelle Bowman will both speak at 9 a.m. ET. Barr is due to speak on Cyber risks, while Bowman will participate in the discussion, “The Path Forward for Bank Capital Reform.”
The Federal Reserve is due to release its industrial production report for December at 9:15 a.m. ET. Industrial output may have remained unchanged from November, which saw a 0.2% increase in output.
The National Association of Home Builders will release its housing market index at 10 a.m. ET. Economists, on average, expect a reading of 39 for January, up from 37 in November.
The Commerce Department is scheduled to release its business inventories report for November at 10 a.m. ET. The index is widely expected to see a 0.1% month-over-month drop, the same pace of decline as in October.
The Federal Reserve will release its Beige Book report at 2 p.m. ET. The report will contain anecdotal evidence about economic conditions in the 12 Federal Reserve districts.
New York Fed President John Williams is due to speak at 3 p.m. ET.
See also: Best Futures Trading Software
Stocks In Focus:
- Interactive Brokers Group, Inc. IBKR fell over 4% in premarket trading following its quarterly results, while Progress Software Corp. PRGS gained over 2%.
- Ford Motor Co. F moved down over 2% after UBS downgraded the stock.
- Chinese stocks listed in the U.S. fell, dragged by soft fourth-quarter GDP data from the country. Alibaba Group Holding Ltd. BABA shed over 3% and JD.com, Inc. JD declined over 4.50%.
- Charles Schwab Corp. SCHW and US Bancorp. USB are among the notable companies due to release their quarterly results before the market opens.
- Those reporting after the close include Alcoa, Inc. AA, Discover Financial Services DFS, and energy pipeline transportation company Kinder Morgan KMI.
Commodities, Bonds, Other Global Equity Markets:
Crude oil futures slumped 1.92% to $71.13 in early European session on Wednesday following Thursday’s 0.37% pullback.
The benchmark 10-year Treasury note edged down 0.002 percentage points to 4.064% on Wednesday.
Asian stocks fell across the board, as weak China data and the negative lead from Wall Street served a double whammy, dragging stock sharply lower. The Chinese National Bureau of Statistics released fourth-quarter GDP data, which showed year-over-year growth accelerated from 4.9% in the third quarter to 5.2%. The growth trailed the 5.3% consensus estimate. The annualized quarter-over-quarter growth came in at 1%, slowing from 1.3% in the third quarter.
The statistical agency also released a slew of reports that largely underlined a soft patch. Retail sales growth for December trailed expectations and the jobless rate came in above estimates. More importantly, the year-over-year house price decline accelerated.
Hong Kong led the slide with the Hang Seng plunging 3.71% and China’s Shanghai Composite Index shed over 2%.
The major European market also fell sharply, with the Euro Stoxx 50 Index down about 1% by late-morning trading. The negative global cues and final eurozone inflation data that showed a pickup from the previous month all weighed down the indices in the region.
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