Before The Bell - The futures market started positively yesterday evening, rebounding after a weak day of trading. The indices headed lower after CPI reports showed slowing inflation rates, mostly occurring in the Core CPI. This figure reflected lower prices for airline fares (down 9.1% in August) and reduced inflation in the core group. It likely increased traders’ fears that an economic slowdown was occurring and caused investors, following a higher opening, to reduce their exposure to the market thereafter. The move lower then continued throughout yesterday’s session, culminating with the Dow Jones Industrial Average finishing 292 points lower, the S&P 500 off by 26 points, and the NASDAQ down 68 points.

Given the highly positive futures markets move in the early evening to midnight, traders likely thought some of this selloff was overdone. But by the early morning, this move had not held up, and the futures market retreated to around breakeven levels. Meantime, several economic reports were released before the bell this morning. These included the Empire State Index for September, which surged 16 points, to 34.3, in September, suggesting an improving economy. Meantime, the import price index should give some insight into the inflation picture. Additionally, industrial production and capacity utilization for August will be reported at 9:15 A.M. (EDT). If current price action holds up, we expect a choppy start to the trading day.  

Market breadth yesterday was rather negative, as decliners outpaced advancers by a 2.2-to-1.0 ratio. All 11 sectors were in the red. Energy stocks were the worst performers, hurt by a decline in related commodities. Meantime, healthcare issues were among the best performers, but only on a relative basis.

In commodity news, oil prices fell yesterday, as traders became more concerned that the Delta variant of the coronavirus would cause less travel and an imbalance between supply and demand. Meantime, U.S. Treasury bond yields fell as traders piled into the safe-haven asset. The yield on the benchmark 10-year Treasury note, which moves inversely to the price, retreated to 1.27%, this morning. The VIX Volatility Index rose slightly as demand for options protection increased.

Looking ahead, a few key economic reports will come out later in the week. These include initial jobless claims as well as Philadelphia manufacturing index tomorrow. On Friday, the University of Michigan Consumer Sentiment Index will be released. Meanwhile, earnings reports will be scarcer over the coming days, suggesting that investors will trade based on changes in the outlook for the broader economy.  -John E. Seibert III

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.