Wall Street Looks Set For Modestly Lower Start Ahead Of Key Data, Tech Stocks Muted In Premarket: Analyst Says 'Bearish Sentiment Has Become Understandably Quiet'

Wall Street is on track for a lackluster open after the S&P 500’s back-to-back record performances in the first two sessions of the week. The major index futures were all uniformly lower in early trading. Given the wall of worry over growth, traders are expected to closely watch data on private sector activity, existing home sales, and a composite leading index. If the tech stocks fight back and push higher, in all likelihood, the market may finish a strong week firmer.

“The momentum remains positive, with the VIX up modestly but still below 13, as bearish sentiment has become understandably quiet given one new high after another,” said fund manager Louis Navellier in a note to his clients.

IT stocks served as drags on Thursday, offsetting strength in energy, consumer discretionary, communication services, financial, and utility stocks. The major averages started the session on a mixed note but turned uniformly higher in early trading amid the release of weak economic data that raised hopes for rate cuts this year. Jobless claims for the recent reporting week fell, albeit by less than expected, housing starts trailed expectations and a regional manufacturing survey showed smaller-than-expected expansion in activity.

Growth worries smothered rate optimism and the averages reversed course and moved steadily lower, bottoming by late-afternoon trading. Although they rebounded from the lows, the S&P 500 Index and the Nasdaq Composite ended in the red. The 30-stock Dow Jones Industrial Average hovered mostly above the unchanged line before ending firmly in positive territory.

Insights From Analysts:

The market could be facing downside risk stemming from the return of volatility, said LPL Chief Technical Strategist Adam Turnquist. The equity market is currently enjoying a backdrop of extremely low volatility, thanks to decelerating inflation, the prospect of less restrictive monetary policy, enthusiasm over artificial intelligence, and resilient corporate earnings and economic growth, he said.

Period of low implied volatility is historically associated with above-average equity market returns, Turnquist said. That said, he cautioned about a potential rise in volatility. “Seasonal VIX trends and rising expectations for increased volatility of volatility suggest the days may be numbered for the current low-volatility backdrop,” he said.

Morgan Stanley Chief Investment Officer Lisa Shalett said in a recent note to clients that if a soft-landing scenario materializes, the equity market gains could broaden. Currently, the market is rallying on enthusiasm around AI, with a handful of large tech stocks driving the advance, she said. If the rally broadens out, the analyst said investors would likely benefit from equal-weighted stock-index strategies and active stock-picking across sectors. 

Upcoming Economic Data:

• S&P Global will release the results of its preliminary manufacturing and services sectors surveys at 9:45 a.m. EDT. The flash manufacturing purchasing managers’ index may have edged down from 51.3 in May to 54 in June, and the service sector PMI may have slipped from 54.8 to 54.
• The National Association of Realtors is scheduled to release its existing home sales report for May at 10 a.m. EDT. Economists, on average, expect existing home sales to come in at a seasonally adjusted annual rate of 4.08 million units, down from 4.14 million units.
• The Conference Board’s leading economic index for May, due at 10 a.m. EDT, may show a decline of 0.3% month-over-month, a slower rate of drop than April’s 0.6% fall.

See Also: How To Trade Futures

Stocks In Focus:

• Smith & Wesson Brands, Inc. SWBI fell over 8.5% in premarket trading following the company’s earnings announcement.
• CarMax, Inc. KMX and FactSet Research Systems Inc. FDS are due to release their quarterly results before the market opens.
• Sarepta Therapeutics, Inc. SRPT climbed about 38% after the FDA approved an expanded label for its Duchenne muscular dystrophy treatment.
• Trump Media & Technology Group Corp. DJT rebounded by over 1% following its recent slide.
• Nvidia Corp. NVDA may extend its slide as it traded down by about 1.50% in the premarket.

Commodities, Bonds And Global Equity Markets:

Crude oil futures were little changed above the $81-a-barrel mark and gold futures extended their gain, with the yellow metal trading above $2,375. The 10-year benchmark U.S. treasury yield edged down 2.8 basis points to 4.226%.

Bitcoin BTC/USD retreated below the $64,000 mark.

Most major Asian markets retreated, with the Hong Kong, New Zealand, and South Korean markets leading the declines. Traders in the region reacted to the lackluster performance of Wall Street overnight and some disappointing domestic data. The Australian, Indonesian, and Singaporean markets, however, bucked the downtrend.

European stocks traded sharply lower in early trading as the eurozone private activity data trailed expectations.

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