After getting clipped by falling mega-cap stocks and sinking oil prices Monday, stocks showed a bit more holiday cheer early Tuesday following solid retail earnings news and sinking volatility. Fed speakers on the schedule later could help determine whether the good mood lasts.
With this morning’s earnings news behind us and no major data until tomorrow, it could be one of those random, headline-driven days. One thing to look out for is whether Fed speakers say anything that shakes the market, the way St. Louis Fed President James Bullard did last week. He talked about rates perhaps needing to rise to between 5% and 7% before the Federal Reserve could ease its inflation fight. But lately, other Fed speakers have sounded more dovish.
Two more Fed speakers are on schedule today before tomorrow afternoon’s release of Federal Open Market Committee (FOMC) minutes. Yesterday, Cleveland Fed President Loretta Mester told CNBC that recent milder inflation data was “good news,” but not convincing enough to stop the cycle of rate hikes. She did say, though, that the pace of rate hikes could slow. The CME FedWatch Tool shows 75% odds of a 50-basis point December rate hike, and better than 50% odds of another 50-basis point hike in February.
Yesterday was another tough one for technology stocks and for semiconductor shares in particular. Chalk it up in large part to China’s continuing COVID-19 issues, which are also hurting big stocks like Apple (NASDAQ:AAPL). Mega-caps were flat to slightly higher in premarket trading this morning, perhaps implying less pressure, at least for now, from Wall Street’s behemoths.
- The 10 Year Treasury Yield (TNX) fell two basis points to 3.8%.
- The US Dollar Index (DXY) is down 0.32% to 107.49.
- Cboe Volatility Index (VIX) futures are trading below 23 and hit their lowest level since late August.
- Crude Oil WTI Futures (/CL) is back above $80 per barrel, recently trading at $81.36.
The VIX is below 23, significantly beneath the 30-plus level many investors were used to in October. That doesn’t mean we’re out of the woods on volatility, according to Randy Frederick, Managing Director of Trading and Derivatives at the Schwab Center for Financial Research. The 20-30 range “implies high uncertainty but not high anxiety,” he wrote.
VIX remains well above its long-term average, which is below 20. At the end of last week, VIX was 23.55, implying an average daily move of around 49 points in the S&P 500. The key takeaway, according to Frederick? “I see the VIX as still neutral in the very near-term for the equity markets,” he said.
Potential Market Movers
Bring your appetite tomorrow. The preholiday spread includes October New Home Sales, October Durable Orders, and November’s final University of Michigan Consumer Sentiment reading. Any of these reports could swing some weight in what may be thin, preholiday trading as Thanksgiving approaches.
And then there’s the latest Federal Open Market Committee (FOMC) minutes due out at 2 p.m. ET Wednesday. Many readers might find FOMC reading a bit dry, but it usually has some tasty nuggets.
- New home sales follow a slew of weak housing data, and analysts don’t expect any major rebound in tomorrow’s report. The consensus on Wall Street is for seasonally adjusted sales of 578,000, down from 603,000 the prior month, according to research firm Briefing.com. They fell nearly 11% in September even as the median sales price increased nearly 14%.
- Look to see if September’s dynamic of relatively strong sales growth for high-end homes and weak growth for less expensive homes continued in October. No single report is ever a trend, but September’s data indicated that luxury homebuyers are in good shape even as lower-income buyers grapple with rising mortgage rates and still-short supplies of affordable homes in many areas.
- Final November Conference Board Consumer Sentiment is likely to be even with the four-month low headline figure of 54.7 reported earlier in the month, according to research firm CFRA.
The Federal Reserve won’t meet again until December 13-14, but as mentioned, November’s FOMC meeting minutes may offer some clues as to where the next gathering might head. If any FOMC members were arguing for a slower or smaller series of rate increases to tame inflation earlier this month, this document is likely to tell us. It could also provide insight into the Fed’s view on inflation and whether its policies were starting to impact prices.
With so much data on Wednesday and many market participants already away for the holiday weekend, be prepared for possible market volatility if the report has any surprises. Thin trading can sometimes deliver more dramatic price swings.
The markets are closed Thursday for Thanksgiving and trading will end early at 1 p.m. ET Friday.