Nasdaq, S&P 500 Futures Edge Up As Traders Look Ahead To FOMC Minutes: Strategist Flags 3 Trends That Could Help Stocks Withstand Volatility

U.S. stocks could claw back their losses, although nervousness is palpable as traders play the waiting game ahead of Federal Reserve Chair Jerome Powell’s Jackson Hole address on Friday. The major averages are slightly higher early Wednesday. The CBOE Volatility Index, aka VIX, climbed more than 8% and has topped the 16 level, reflecting a slight increase in the fear sentiment. The Fed minutes due in the afternoon and the earnings reports of the day could influence trading direction.

Futures	Performance (+/-)
Nasdaq 100	+0.04%
S&P 500	+0.07%
Dow	+0.07%
R2K	+0.5%

In premarket trading on Wednesday, the SPDR S&P 500 ETF Trust SPY edged up 0.03% to $558.85, and the Invesco QQQ ETF QQQ gained 0.02% to $480.38, according to Benzinga Pro data.

Cues From Last Session:

The eight-session advance proved to be too good of an opportunity to be let gone and traders promptly took some money off the tables, and this dragged stocks lower on Tuesday. Disappointing earnings from home-improvement retailer Lowe’s Companies, Inc. LOW also served as a downside trigger. Stocks are digesting Monday’s strong gains, said fund manager Louis Navellier.

The major averages opened lower but managed to move into positive territory in early trading. They pulled back soon after and languished below the unchanged line for the remainder of the session. That said, the losses were only modest, underlining the positive momentum in the market.

The Dow Jones Industrial Average snapped a five-session run, while the Nasdaq Composite and the S&P 500 Index retreated after eight straight sessions of gains.

Small-cap stocks underperformed, with the Russell 2,000 Index falling by over 1%.

Seven of the 11 S&P 500 sectors settled the session lower, led by energy stocks, while consumer staple, healthcare, real estate and communication services stocks bucked the downtrend.

Index	Performance (+/)	Value
Nasdaq Composite	-0.33%	17,816.94
S&P 500 Index	-0.20%	5,597.12
Dow Industrials	-0.15%	40,834.97
Russell 2000	-1.17%	2,142.19

Insights From Analysts:

Fund Strat Head of Research Tom Lee said his firm’s base-case assumption is for a soft landing and the Fed embarking on an easing cycle that would bring rates from a too high 5.5%. In an interview with CNBC, the strategist calls for a 40% rally in small-cap stocks, which would mean these companies will see valuation bump up from 10 times to 14 times. Small-cap stocks that were left behind as the Fed funds rate remained high for about two years now will likely come back up, he said.

To make his case, Lee noted that M&A activity is picking up, which is seen as a sign of CEO confidence. He also said the perception that small-caps are lagging in earnings growth is due to the biotech stocks, which are a fairly big cohort in the group. Small-caps are growing earnings and revenue by nearly 700 and 400 basis more than the S&P 500 companies, he said, adding the catalyst will therefore be the Fed rate cut.

Comerica Chief Investment Officer John Lynch said he sees downside support for the market. “U.S. real GDP growth remains favorable, interest rates are heading lower and corporate profits are firm,” he added. 

“We believe these three trends will help market sentiment should any further bouts of volatility materialize in the coming months.”

Lynch also made note of the rapid roundtrip of the CBOE Volatility Index, often called the “fear gauge” in just two weeks. “This rapid decline in the VIX suggests that the market’s earlier fears were overblown and that investor confidence has returned to the equity markets,” he said.

Upcoming Economic Data

• The Energy Information Administration will release its weekly petroleum status report at 10:30 a.m. EDT.
• The Fed will release the minutes of the July Federal Open Market Committee meeting in which the central bank announced another pause decision. The minutes, due at 2 p.m. EDT, may give further insights into the Fed’s thinking, potentially offering cues to the near-term rate trajectory.

See also: Best Futures Trading Software

Stocks In Focus:

• Toll Brothers, Inc. TOL climbed over 1% in premarket trading following the company’s quarterly results announcement. ZTO Express (Cayman) Inc. ZTO rose over 3% and Keysight Technologies, Inc. KEYS jumped over 11%, while La-Z-Boy Incorporated LZB fell over 3%, also in reaction to earnings.
• Analog Devices, Inc. ADI, Macy’s, Inc. M, Target Corporation TGT and TJX Companies, Inc. TJX are among the notable companies due to release their quarterly results before the market opens.
• Those reporting earnings after the close include Agilent Technologies, Inc. A, Urban Outfitters, Inc. URBN, Snowflake Inc. SNOW, Zuora, Inc. ZUO, Wolfspeed, Inc. WOLF, Nordson Corporation NDSN, Synopsys, Inc. SNPS and Zoom Video Communications, Inc. ZM.
• BigBear.ai Holdings, Inc. BBAI jumped over 33% on a contract win.
• JD.com, Inc. JD slid nearly 7% after Walmart, Inc. WMT sold its stake in the Chinese e-commerce company.

Commodities, Bonds And Global Equity Markets:

Crude oil futures rebounded from a four-session slide, while gold futures eased from their record highs. Bitcoin BTC/USD fell toward the $59k level and the yield on the 10-year Treasury note was unchanged at 3.818%.

Most major Asian markets retreated, tracing the negative performance of Wall Street overnight, while European stocks firmed up in early trading on Wednesday.

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