US Stocks Pause As Traders Await Powell's Speech: Analyst Warns Of Retest Of October Lows As Market, Economic Data Conspire Against Monetary Policy

BY Benzinga | ECONOMIC | 02/07/23 06:51 AM EST

Stocks look set for another nervous session on Tuesday as traders look ahead to comments from Fed Chair Jerome Powell and another batch of earnings reports.

Cues From Monday's Trading:

The major U.S. averages ended Monday's session lower, extending the losses from the previous session. Skittish traders liquidated stocks after bond yields surged on fears that the fed funds rate would continue to rise in the wake of recent strong economic data.

See Also: How To Trade Futures

Stocks opened the session lower and experienced volatility in early trading, dropping to their intra-day lows by late morning trading. After cutting some losses, the S&P 500 Index and the Nasdaq Composite continued to languish in the red before closing notably lower.

The 30-stock Dow Industrials managed to sneak above the unchanged line in early afternoon trading but pulled back soon after and closed modestly lower.

Technology, communication services and material stocks were among the worst decliners on Monday. On the other hand, defensive utility stocks bucked the downtrend.

U.S. Indices' Performance On Monday
Index Performance (+/-)   Value
Nasdaq Composite -1.00%   11,887.45
S&P 500 Index -0.61%   4,111.08
Dow Industrials -0.10%   33,891.02

Analyst Color:

Economic data and market performance appear to be conspiring against monetary policy thus far in 2023, said John Lynch, chief investment officer at Comerica Wealth Management. "Despite consistent messaging from Fed Chair Jerome Powell, the financial markets continue to outperform, setting up the potential for a standoff that may not end well for investors, or the Fed," he added.

"Though our mild recession scenario, highlighted in our 2023 Outlook, may be pushed back a few months due to strong employment figures, we still expect a retest of the October equity market lows before investors begin to price in a 2024 recovery in the second half of this year."

Futures Today

U.S. Futures' Performance On Tuesday
Index Performance (+/-)  
Nasdaq 100 Futures +0.21%  
S&P 500 Futures +0.06%  
Dow Futures -0.06%  
R2K Futures +0.09%  

In premarket trading on Tuesday, the SPDR S&P 500 ETF Trust (NYSE:SPY) edged up 0.06%, to $410.08, and the Invesco QQQ Trust (NASDAQ:QQQ) rose 0.23%, to $304.30, according to Benzinga Pro data.

Upcoming Economic Data:

The Commerce Department is scheduled to report its trade balance report for December at 8:30 a.m. EST. Economists expect the trade deficit to have widened from $61.5 billion in November to $66.5 billion.

The Redbook index, a sales-weighted index of year-over-year same-sales growth in a sample of large U.S. general merchandise retailers, is scheduled to be released at 8:55 a.m. EST.

The Investor's Business Daily/TechnoMetrica Institute of Policy and Politics' economic optimism index for February is due at 10 a.m. EST. The index is compiled based on perceptions concerning economic conditions, economic outlook, personal financial outlook and confidence in federal economic policies. In January, the index dipped 0.6 points, to 42.3, well below the average reading of 49.6 for the past two decades.

The Energy Information Administration is scheduled to release its Short-term Energy Outlook report at 12 p.m. EST.

Fed Chair Powell is scheduled to have a discussion with David Rubenstein, chairman of the Economic Club of Washington, D.C., at 12:40 p.m. EST. Fed Vice Chair for Supervision Michael Barr, will make a public appearance at 2 p.m. EST.

The Federal Reserve will release its monthly report on outstanding consumer credit at 3 p.m. EST. The metric is expected to slip from $27.96 billion in November to $23 billion in December.

Stocks In Focus:

  • Oak Street Health Inc. (NYSE:OSH) soared about 35% in premarket trading on a Wall Street Journal report that CVS Health Corp. (NYSE:CVS) is nearing a deal to buy the former for about $10.5 billion.
  • Educational services company Chegg Inc. NYSE: CHGG) tumbled over 23% on weak forecasts issued by the company. Microsoft Corp. (NASDAQ:MSFT) climbed 1% ahead of a surprise press event to announce ChatGPT integration with its services.
  • DuPont de Nemours Inc. (NYSE:DD), Hertz Global Inc. (NYSE:HTZ) and Royal Caribbean Cruises Ltd. (NYSE:RCL) are among the companies reporting before the market open.
  • Notable companies reporting after the close include H&R Block Inc. (NYSE:HRB), Illumina Inc. (NASDAQ:ILMN), Yum China Holdings Inc. (NYSE:YUMC), Viasat Inc. (NASDAQ:VSAT) and Western Union Company (NYSE:WU).

Top Analysts' Call

  • Pinterest Inc. (NYSE:PINS): KeyBanc Capital maintains Overweight rating and raises price target from $28 to $32, following its mixed fourth quarter.
  • On Semiconductor Corp. (NASDAQ:ON): Needham maintains a Strong Buy rating and raises price target from $73 to $100; Raymond James maintains Outperform rating and raises price target from $78 to $90.

Commodities, Bonds, Other Global Equity Markets:

Crude oil futures extended their gains and traded up about 2% at $75.58 a barrel on Tuesday. After dropping below $73 on Monday, the black gold staged a nice recovery before ending notably higher.

Bond yields held largely unchanged after Monday's sharp climb. The yield on the benchmark 10-year Treasury note edged down 0.013 percentage points to 3.619%.

The Asia-Pacific markets went about in a lackluster manner on Tuesday, tracking the negative lead from Wall Street overnight and some domestic cues. Japan's Nikkei 225 average ended marginally lower as traders reacted to some disappointing domestic data points, while Australia's All Ordinaries fell moderately after the Reserve Bank of Australia raised its key interest rates by 25 basis points to a decade high of 3.25%.

On the other hand, the Chinese, Hong Kong, Indonesian and South Korean markets advanced during the session.

European stocks were mostly higher amid some volatility on Tuesday.

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In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.