US Stocks Poised To Bounce Back As Bond Yields Dip, Oil Prices Slide, PepsiCo Pulls Back: Set-up 'Quite Positive' For Equities, Says Economist

Wall Street is gearing up for a firmer start on Tuesday after stocks pulled back sharply in the previous session. The index futures firmed up amid a pullback in the 10-year Treasury note yield and dovish comments issued by a Federal Reserve official. Speaking at a European Central Bank event in Frankfurt, Germany, Fed Governor Adriana Kugler said if the progress seen on the inflation front continues, she would support additional cuts in the Fed fund rate. She also reiterated the recent Fed rhetoric that the central bank’s attention has shifted away from inflation toward maximum employment.

With China refraining from issuing details on further stimulus, sentiment soured in Asia. This also weighed down on oil prices. Traders may focus on the bond yields and a Fed speech scheduled during market hours. The offsetting impact could come from the negative reaction to PepsiCo, Inc.’s PEP earnings which could intensify anxiety concerning the third-quarter reporting season. Some key first-tier data due for the remainder of the week could introduce some caution.

Futures	Performance (+/-)
Nasdaq 100	+0.37%
S&P 500	+0.46%
Dow	+0.13%
R2K	+0.01%

In premarket trading on Tuesday, the SPDR S&P 500 ETF Trust SPY rose 0.30% to $569.53 and the Invesco QQQ ETF QQQ moved 0.31% higher to $483.59, according to Benzinga Pro data.

Cues From Last Session:

Stocks fell sharply on Monday, reversing course from the jobs data-induced upside seen last Friday. The major indices opened lower and moved roughly sideways below the unchanged line before they fell sharply in the afternoon, as traders weighed in on the rise in bond yields, the imminent reporting season., some negative tech tidings and a couple of Fed speeches. The indices consolidated around the lower levels in the last hour of trading before closing notably lower.

Hurricane Milton, the newest one of the 2024 hurricane season, also exerted downward pressure on insurance stocks.

All but one of the S&P 500 sector classes closed in the red, with energy stocks bucking the downtrend. Utilities and communication services stocks fell sharply, while consumer discretionary and consumer staple stocks as well as rate-sensitive financial stocks came under selling pressure.

The S&P 500 settled at a two-week low and the 30-stock Dow Industrials Average closed at the lowest since Sept. 25.

Index	Performance (+/)	Value
Nasdaq Composite	-1.18%	17,923.90
S&P 500 Index	-0.96%	5,695.94
Dow Industrials	-0.94%	41,954.24
Russell 2000	-0.89%	2,193.09

Insights From Analysts:

In the wake of stronger-than-expected non-farm payrolls gains for September and a downtick in the unemployment rate, Morgan Stanley’s Chief U.S. Market Strategist Mike Wilson said the firm is taking profit on its long-standing large-cap overweight stocks and moving to neutral on large versus small caps.

A rate-cutting cycle in and of itself does not justify small cap outperformance but “an outsized start to a rate-cutting cycle combined with a much stronger than expected payroll print does make the risk-reward for a large cap overweight less attractive, at least tactically,” he said.

“Improving small business sentiment and a rising ISM PMI are also supportive of the idea that small caps can keep up with large caps for the time being,” Wilson said. Within small caps, he recommended staying up the quality curve, ie companies with stronger margin and balance sheet profiles.

Meanwhile, Wisdom Tree Senior Economist and Wharton professor Jeremy Siegel sees the backdrop remain “quite positive” for stocks. The climb in the bond yield reflects investor expectations that a recession is unlikely. “This lower probability of a recession is also good for equities, particularly the lower valued segments of the market like small caps which are very sensitive to recession fears,” the economist said.

Siegel expects the S&P 500 to hit 6,000 by the end of 2024 but the returns in 2025 to be more subdued than in 2023 and 2024.

Economists do not expect oil to rise exorbitantly due to the Middle East tensions as the U.S. has achieved greater energy self-sufficiency over the last few decades.

“Overall, the backdrop remains quite positive for equities,” Siegel said, adding that “the Fed is on course for cutting five to six times by next summer, while the economy remains quite resilient.”

See Also: How To Trade Futures

Upcoming Economic Data:

• The Commerce Department is due to release the trade deficit report for August at 8:30 a.m. EDT, with economists, on average, expecting a deficit of $70.8 billion for August compared to the previous month’s deficit of $78.8 billion.
• The Atlanta Fed GDPNow report for the third quarter is due at 10:30 p.m. EDT.
• Among the Fed speakers scheduled for the day are:
  • Atlanta Fed President Raphael Bostic: 12:45 p.m. EDT
  • Boston Fed President Susan Collins: 4 p.m. EDT
  • Federal Reserve Vice Chair Philip Jefferson: 7:30 p.m. EDT
• The Treasury is set to auction three-year notes at 1 p.m. EDT.

Stocks In Focus:

• Las Vegas Sands Corp. LVS and Wynn Resorts, Limited WYNN moved down over 6% each in premarket trading.
• Nvidia Corp. NVDA climbed over 1.71%, extending the gains from Monday.
• PepsiCo slipped over 1% after the company’s third-quarter revenue missed expectations and it reduced its 2024 organic growth outlook.

Commodities, Bonds And Global Equity Markets:

The WTI-grade crude oil futures fell over 2% following an extended rally seen in the wake of the Middle East tensions and gold futures moved modestly lower. Bitcoin BTC/USD slipped a percent over the past 24 hours, with the apex crypto trading below $62.5K.

The 10-year Treasury note edged down marginally to 4.022%.

The Asian markets closed on a mixed note as traders reacted negatively to Wall Street’s pullback overnight. While Hong Kong and the Japanese markets led the decliners, the Chinese market, which reopened after the weeklong National Day holiday, extended its winning run. The Shanghai Composite Index ended up 4.59%, although well off the day’s high, after the chairman of China’s economic planner, Zheng Shanjie did not provide any further clarity on fresh fiscal stimulus. Hong Kong’s Hang Seng Index tumbled 9.41%.

European stocks also fell in early trading, with the U.K.’s FTSE 100 Index underperforming as the yield on 10-year U.K. government gilts rose to 4.2%, its highest level since the general election in July.

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