Benzinga - by Shanthi Rexaline, Benzinga Editor.
An in-line Federal Reserve decision failed to boost market sentiment, leading to negative signals in index futures on Thursday. Small-cap and tech stocks faced particular weakness, exacerbated by the 10-year Treasury note yield reaching a fresh 16-year high, which could diminish risk appetite, especially in growth-focused tech stocks.
Several key economic indicators related to the labor market, manufacturing sector, and leading economic index could influence market sentiment. Negative news on these fronts might be interpreted as positive by investors, as it could lead to expectations of a more lenient stance from the Fed. Additionally, the lack of an agreement among lawmakers on a funding deal to avert a government shutdown is a concern for traders.
Earnings reports from FedEx Corp. (NYSE:FDX) have been positive, and traders may also show interest in a significant central bank decision from Europe.
Cues From Wednesday’s Trading:
Stocks closed lower on Wednesday as traders assessed the Federal Reserve’s decision and the central bank’s outlook on interest rates. Major indexes mostly rose before the Fed’s announcement, except for the Nasdaq Composite Index. While the market initially responded positively to the Fed’s rate pause, sentiment turned negative after the release of the dot-plot curve and Federal Reserve Chair Jerome Powell‘s comments during the press conference.
Consequently, major indexes, including the Dow Industrials, S&P 500, and Nasdaq Composite, closed lower for a second consecutive session, reaching nearly one-month lows. The Russell 2000 Index declined in the past four sessions, hitting a 3-1/2 month low.
Tech stocks, especially communication services and IT stocks, suffered the most significant losses, while defensive sectors like utilities, healthcare, and consumer staples showed some strength.
US Index Performance On Wednesday
| Index | Performance (+/-) | Value |
| Nasdaq Composite | -1.53% | 13,469.13 |
| S&P 500 Index | -0.94% | 4,402.20 |
| Dow Industrials | -0.22% | 34,440.88 |
| Russell 2000 | -0.90% | 1,810.10 |
Analyst Color:
With the Fed decision now behind, the market attention will likely shift to corporate earnings growth. The market is forward-looking, and some of the strength seen despite the continuing uncertainties can traced back to expectations that corporate profit growth will rebound nicely in 2024.
Morgan Stanley’s Lisa Shalett said, “Wall Street analysts expect a 12% rise in company profits next year, but recent economic data may call for a less rosy outlook.” The analyst flagged a trio of risks, namely sticky inflation, bloated inventory levels, and wobbly consumer sentiment.
Shalett expects persistent inflation to weigh on consumer demand and corporate margins. Overstocked shelves, rising credit card balances, and dwindling consumer savings could further weaken economic activity, she said.
The analyst also noted the attractive yields of fixed income and the diminished potential reward for the risk of holding stocks.
Futures Today
Futures Performance On Thursday
| Futures | Performance (+/-) |
| Nasdaq 100 | -0.77% |
| S&P 500 | -0.62% |
| Dow | -0.46% |
| R2K | -0.72% |
In premarket trading on Thursday, the SPDR S&P 500 ETF Trust (NYSE:SPY) slid 0.59% to $436.06 and the Invesco QQQ ETF (NASDAQ:QQQ) gained 0.72% to $361.92, according to Benzinga Pro data.
Upcoming Economic Data:
The Labor Department is scheduled to release its customary weekly jobless claims report at 8:30 a.m. EDT. Economists, on average, expect the number of individuals claiming unemployment benefits to come in at 225,000 in the week ended Aug. 16, up from 220,000 in the previous week.
The Philadelphia Federal Reserve will release the results of its manufacturing survey at 8:30 a.m. EDT. The diffusion index of business activity is expected to have moved into contraction territory in September, from 12 in August to -0.7 in the current month.
The Bureau of Economic Analysis will release its second-quarter current account data at 8:30 a.m. EDT. The current account deficit is expected to have widened slightly from $219.3 billion to $221 billion.
The Conference Board is due to release its leading economic index for August at 10 a.m. EDT. The consensus estimate forecasts another month-over-month decline for the month from 0.4% to 0.5%.
The National Association of Realtors’ existing home sales report for August, due at 10 a.m. EDT. is expected to show existing home sales of 4.10 million, up slightly from 4.07 million units in July.
Stocks In Focus:
- FedEx rallied over 5% in premarket trading following the release of its quarterly results.
- KB Home, Inc. (NYSE:KBH) fell about 2% in reaction to its earnings report.
- Broadcom, Inc. (NASDAQ:AVGO) fell more than 5.50% after an Information report said Alphabet, Inc. (NASDAQ:GOOGL) (NASDAQ:GOOG) was planning to drop the former as its AI chipmaker. Marvell Technology, Inc. (NASDAQ:MRVL) climbed about 4% after the same report said Alphabet plans to launch an improved networking chip, internally code-named Granite Redux, with Marvell by next year.
- Darden Restaurants. Inc. (NYSE:DRI) and FactSet Research Systems, Inc. (NYSE:FDS) are due to release their quarterly results before the market opens.
Crude oil futures fell 1.08% to $88.69 in early European session on Thursday following Wednesday's 1.01% pullback
The benchmark 10-year Treasury note jumped 0.084 percentage points to 4.431% on Thursday, marking a fresh 16-year high.
Asian stocks fell across the board, as traders took stock of the Fed rate decision and reacted to the rising bond yields.
European stocks were also lower by late-morning trading on Thursday, as traders kept an eye on a central bank decision from the region.
The Bank of England is due to announce its interest rate decision at 7 a.m. EDT, with economists modeling a 25 basis-point increment to 5.50%. The central bank Governor will release an inflation letter at 7:30 a.m. EDT. A BOE inflation letter is required to be written by the governor to the Chancellor of the Exchequer if the inflation deviates by over 1% from the central bank’s 2% target.
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