Wall Street Set To Open Weaker As Bond Yields Rise, Meme Rally Cools: Analyst Says Stick With What's Working Amid Volatility

U.S. stocks are poised to open lower on Wednesday following the boost from the tech rally in the previous session. The spotlight will likely be on bond yields, which have climbed in recent sessions on hopes of a “higher-for-longer” monetary policy stance. Traders may also draw clues from some key retail earnings reports due ahead of the market open, Federal Reserve officials’ speeches, the central bank’s Beige Book report, and the reception to a Treasury auction. Renewed geopolitical tensions in the Middle East may dampen risk appetite.

In premarket trading on Wednesday, the SPDR S&P 500 ETF Trust SPY declined 0,58% to $526.76, and the Invesco QQQ ETF QQQ traded down 0.66% at $456.63, according to Benzinga Pro data.

Cues From Previous Session

The markets closed Tuesday’s session on a mixed note, as Nvidia Corp.’s NVDA strength propped up the Nasdaq Composite Index past the 17,000 barrier for the first time. The S&P 500 Index closed barely in the green, while the Dow Jones Industrials languished below the flat line throughout the session, dragged by healthcare, consumer, and financial stocks.

A sharp rise in bond yields following the poor reception to Treasury actions served to offset the tech optimism.

Following the auctions, a sell-off ensued in the afternoon, pushing even the Nasdaq Composite Index momentarily below the unchanged line. The tech-heavy index and the S&P 500 Index made good their losses over the remainder of the session.

Commenting on the recent market volatility, Fundstrat’s Tom Lee observed that investors have been somewhat hesitant this year, resulting in short pullbacks. “The best strategy for investors is to stick with what’s working,” he said in a CNBC interview. He recommended focusing on AI-related themes, such as Nvidia, or highly correlated stocks like Super Micro Computer, Inc. SMCI, as well as Ozempic-related trades, industrials, financials, Bitcoin BTC/USD, and small-caps, which are experiencing a stealth rally.

Fund manager Louis Navellier, meanwhile, expressed concerns about market concentration. He noted that the top 10 companies in the S&P 500 now account for a record 35% of the total valuation and 26% of total earnings. “Hopes for a broadening of market gains are not being realized; both the Dow and Russell 2000 are up less than 3% YTD, with the Russell spending half the year off and on in the red,” he said. Navellier also pointed out that the equal-weighted S&P is 33% behind the market-weighted S&P’s 26% YTD return.

Navellier further raised the issue of potential sell-offs in these large companies affecting other strong companies when index sellers take money off the table.

Upcoming Economic Data:

• New York Fed President John Williams is scheduled to speak at 11:45 a.m. EDT.
• The Treasury will auction seven-year notes at 1:30 p.m. EDT.
• At 2 p.m. EDT, the Fed is scheduled to release its Beige Book report, which contains anecdotal evidence of economic conditions in the 12 Fed districts.
• Atlanta Fed President Raphael Bostic will speak at 7 p.m. EDT.

Stocks In Focus:

• American Airlines Group Inc. AAL fell over 8% in premarket trading after the airliner slashed its second-quarter forecasts.
• Robinhood Markets, Inc. HOOD climbed over 4% after the company’s board authorized a $1 billion stock buyback plan.
• Meme rally has cooled off, with GameStop Corp. GME down over 4%.
• Abercrombie & Fitch Co. ANF, Advance Auto Parts, Inc. AAP, American Eagle Outfitters, Inc. AEO, Chewy, Inc. CHWY and Dick’s Sporting Goods, Inc. DKS are among the notable companies reporting before the market open.
• Those reporting after the close are Agilent Technologies, Inc. A, C3.ai, Inc. AI, HP Inc. HPQ, Okta, Inc. OKTA, Nutanix, Inc. NTNX, Salesforce, Inc. CRM, UiPath Inc. PATH, Stratasys Ltd. SSYS and nCino, Inc. NCNO.

Commodities, Bonds, and Global Equity Markets:

Crude oil futures extended their rally and traded above the $85-a-barrel level, while gold futures fell modestly. The U.S. 10-year note yield continued rising and was last seen at 4.566%.

The Asian markets fell across the board, taking cues from Wall Street overnight, while European stocks also started Wednesday’s session on a weak note as traders digested German inflation data.

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