Before The Bell - The stock market started the day modestly lower yesterday, as news broke that retail spending was lower than expected. It marked the first year-over-year drop in spending since February, suggesting that the recovery will likely be uneven. The indices continued to trade at a moderately lower level throughout the day, as inflation fears picked up. Still, this price movement was restrained as traders did not want to make large changes ahead of today's Fed meeting. Overall, the Dow Jones Industrial Average fell 94 points, the S&P 500 was off nine points, and the NASDAQ was lower by 101 points.
Market breadth was slightly negative, as decliners outpaced advancers by a 1.1-to-1.0 ratio. Energy stocks were among the best performers, helped by increased commodity prices. Meanwhile, REITs were among the weakest performers, hurt by interest-rate sentiment. Meantime, U.S. Treasury bond yields were up slightly across the board, as traders have started to price in a higher level of inflation. Though this usually is a positive for financial income, the interest-rate move upward was quite limited. The CBOE Volatility Index (VIX) rose as traders' demand for option protection increased.
The futures started modestly lower and then proceeded to trade sideways throughout the night. By early morning, the futures were a mixed bag, but still none close to the neutral line. This suggests an uneven start to the trading day.
Looking ahead, all eyes will be on the U.S. Federal Reserve's monetary policy announcement at 2 P.M. (EDT). This will give insight into how the central bank views inflation and what the Fed’s interest-rate trajectory might be in the years ahead. Traders will be eyeing the long-term outlook to see if there are any changes to the yield curve projections.
Meantime, before we get to the Fed’s decision and Chairman Powell’s commentary (expected 30 minutes after the Fed statement is released), market participants will be digesting the latest building permits and housing starts data. This will provide more clues to how the broader economy is recovering. At first blush, the report was solid, with May privately‐owned housing starts coming in at a seasonally adjusted annual rate of 1,572,000. Although the figure fell short of expectations, the total was up 3.6% sequentially and 50.3% above the coronavirus-impacted May, 2020 figure.
Conversely, today’s earnings calendar is quite empty, as only a few smaller companies are slated to report before the bell and after the close. Overall, we think that the session will be largely driven by the coming Fed announcement. - John E. Seibert III