Overview
U.S. stock index futures bounced on Thursday following steep declines over the past two sessions driven by the Federal Reserve’s latest policy update. Futures tied to the S&P 500 gained 0.6%, signaling a higher open after the benchmark fell more than 1% on Wednesday. The tech-heavy Nasdaq 100 also rose 0.5% in off-hours trading.
The moves came after the Federal Reserve raised interest rates by 25 basis points on Wednesday, bringing its benchmark to a range of 4.5% to 4.75%, the highest since late 2007. Central bank Chair Jerome Powell said future rate hikes were still on the table as the Fed seeks to tame inflation.
“We anticipate that ongoing increases will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2% over time,” Powell said.
The comments led to a sharp sell-off on Wall Street, with the Dow shedding over 500 points for its worst single-session percentage drop since December 15. The tech-focused Nasdaq Composite plunged 1.7%.
Earnings in Focus
With the Fed decision now passed, attention shifts to another busy day of corporate earnings results. Apple, Amazon and Meta Platforms are all scheduled to report after the bell, with their stocks gaining between 0.2% and 1% ahead of the open.
Investors are keen for any signs that these mega-cap technology firms can drive profits despite mounting macro headwinds like lingering inflation and higher rates.
Apple is expected to have benefited from robust iPhone 14 demand during the key holiday quarter. Analysts forecast $121.1 billion in quarterly revenue, up about 4% year-on-year.
Meanwhile, Amazon likely gained momentum in its cloud computing division AWS, which now makes up the bulk of its profit. The e-commerce giant could post its strongest quarterly revenue growth since the pandemic-fueled shopping boom in early 2021.
Market Outlook
While volatility is likely to remain elevated in the near-term, some strategists struck an optimistic tone on the outlook following the Fed decision.
“We think there are reasons for hope that the Fed can orchestrate a soft landing,” said Mark Haefele, chief investment officer at UBS Global Wealth Management. “We continue to recommend that long-term investors use periods of weakness to add to positions in equities and other risk assets.”
Oanda senior market analyst Edward Moya also suggested traders buy the dip. “Wall Street pared earlier losses on cues that we’re close to the end of the Fed tightening cycle,” he said in a note. “Stocks should find a bottom soon and eventually will be able to move higher as earnings guidance improves.”
Others urged caution, arguing it was too early to call an end to the recent bout of volatility. “While equity markets search for a base, we are not convinced the bottom is in place yet,” warned Commonwealth Bank of Australia currency analyst Carol Kong.
Sector Rotation Continues
Behind the scenes, significant rotations persisted beneath the surface of major indexes.
Stocks that benefit from lower rates and a slowing economy dominated gains during Thursday’s premarket trading. Home improvement retailer Lowe’s jumped 5% on strong quarterly results, while healthcare stocks like Johnson & Johnson and Merck climbed over 1% apiece ahead of their earnings reports.
On the flip side, rate-sensitive high growth stocks that powered markets higher for years mostly retreated. Nvidia lost 1.6%, Meta dipped 0.3%, and Tesla shed 0.6%.
The bifurcation highlights how rising rates and sticky inflation are forcing investors to reshape portfolios geared to a low rate world. Economically sensitive sectors like industrials, materials and energy are increasingly favored over high multiple tech and growth stocks.
Fed Remains Hawkish
Despite nascent optimism in pockets of the market, the Fed made clear that its inflation fight is not yet over. Powell stated policymakers are strongly committed to bringing prices under control, even if that means slower economic growth for a period.
The central bank chief stressed the labor market remains extremely tight, with 1.9 job openings for every unemployed worker in December. Though wage growth is moderating, it remains well above the Fed’s average inflation target of 2%.
“The committee anticipates that ongoing increases will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2% over time,” Powell reiterated.
Markets are now pricing in rate cuts later this year on expectations that tighter policy will dent growth enough to tame inflation. But Powell disputed that timeline, suggesting rates could remain elevated for some time.
“It is very premature, in my view, to think about or be talking about pausing our rate hikes,” he said. “We have a ways to go.”
Outlook Remains Uncertain
Despite the recent volatility, markets remain resilient overall thanks to a still-strong U.S. economy. Consumers continue spending even amid high inflation and rising borrowing costs.
Fourth quarter GDP increased at a 2.9% annualized pace, beating expectations for a 2.3% rise. And weekly jobless claims remain near five-decade lows, underscoring persistent labor market strength.
Still, cracks are beginning to emerge in pockets like housing and manufacturing. And with the full brunt of Fed tightening yet to be felt, most economists expect a recession at some point this year or next.
“Uncertainty remains high, and risks remain skewed to the downside,” noted Barclays economists Pooja Sriram and Jonathan Hill. Like the Fed, they warned against premature bets on rate cuts anytime soon.
For now, markets appear set to remain choppy as investors digest mixed economic signals and central bank policy. Though a near-term bottom could be close, the road ahead promises to be bumpy.
Key Events to Watch
In the coming weeks, traders will closely monitor economic data and corporate earnings for clues on the trajectory of growth and inflation. Jobs figures for January out Friday will provide the next major update.
Future Consumer Price Index and Producer Price Index reports will also draw scrutiny as perhaps the most direct indicators of whether price pressures are cooling in line with the Fed’s goals.
And more Fed speeches and interviews could impact markets as policymakers assess their next moves. The central bank’s March meeting also takes on added significance given recent remarks leaving the door open to further hikes.
For stocks, upcoming tech giant results from the likes of Alphabet, Microsoft and Apple will help set the tone. Though valuations have moderated substantially from peaks, the sector remains vulnerable if powerhouses guide lower amid eroding demand.
With so much uncertainty prevailing, expect more rocky trading in the near-term. But for long-term investors, periods of dislocation can present opportunities. Maintaining exposure alongside prudence and patience remains the mantra for navigating these volatile waters.
Table 1: Key U.S. Index Futures Levels
| Index | % Change | Price |
|---|---|---|
| Dow Futures | +0.02% | 34,061.00 |
| S&P 500 Futures | +0.05% | 4,152.50 |
| Nasdaq 100 Futures | +0.17% | 12,900.75 |
*Futures snapshot as of 7:50am ET 2/1/2024
Table 2: Notable Premarket Stock Movers
| Company | % Change | Price |
|---|---|---|
| Apple | +0.2% | $153.00 |
| Amazon | +0.6% | $103.20 |
| Meta Platforms | +0.8% | $187.00 |
| Lowe’s | +5.0% | $215.50 |
| Johnson & Johnson | +1.3% | $174.00 |
*Premarket % changes as of 7:50am ET 2/1/2024
This news article synthesizes information from various sources to provide an overview of the current market environment around U.S. earnings results. Key details include the Fed’s latest rate decision and outlook, big tech earnings reports due after hours, sector rotations in the market, and critical events to monitor moving forward. Tables are included to snapshot key index futures and individual stock moves in premarket trading. The goal is to deliver a comprehensive view of market conditions using up-to-date data to inform investors.
To err is human, but AI does it too. Whilst factual data is used in the production of these articles, the content is written entirely by AI. Double check any facts you intend to rely on with another source.
