Stock Futures and Yields Skip Ahead as Market Mulls Fed Minutes, Hot Jobs Data, and Cooling Growth

(Thursday market open) Stock futures went green early Thursday but Treasury yields also rebounded, posing a potential challenge if the S&P 500® index (SPX) is going to break its four-day losing streak.

Accelerating yields deserve a lot of blame for this week’s stock market losses, as worries about inflation and Federal Reserve policy took their toll. Yesterday’s minutes from the last Federal Open Market Committee (FOMC) meeting didn’t hold any real surprises, instead reinforcing ideas that the FOMC is prepared to go to the mat fighting inflation. The SPX finished yesterday at one-month lows, though the tech-heavy Nasdaq ($COMP) forged light gains.

The $COMP might get a further boost this morning from semiconductor company Nvidia’s (NVDA) solid results and positive outlook. Shares of NVDA are up 9% in premarket trading.

Just In

Gross Domestic Product (GDP): In a bit of a surprise, the government’s second estimate for Q4 GDP fell to 2.7% from the previous 2.9%. Analysts hadn’t expected a change.

Weekly Initial Jobless claims: The weekly tally was 192,000, below analysts’ estimates for 200,000. This data point has been stubbornly low for weeks, raising concerns that the labor market might remain overheated.

Morning rush

  • The 10-year Treasury note yield (TNX) rose 2 basis points to 3.95%.
  • The U.S. Dollar Index ($DXY) traded near 104.5.
  • Cboe Volatility Index® (VIX) futures declined moderately to 21.87.
  • WTI Crude Oil (/CL) inched slightly higher to $74.80 per barrel.

The strong risk-on sentiment that took Wall Street by storm early this year is facing its first big test as markets slide, and rising volatility is one barometer. While the VIX hasn’t come anywhere near last year’s swollen levels above 30, it’s climbed from below 18 to above 22 over the last two weeks, which represents a large move and the highest point since mid-December.

That could mean investors expect a greater chance of major market moves in coming days and weeks. If you’re trading, consider extra caution—perhaps by making smaller-than-normal moves. There’s also nothing wrong with simply watching and waiting. Choppy markets can sometimes cause people to trade out of emotion rather than conviction—not a good thing.

Eye on the Fed

The recent volatility likely indicates investor uneasiness associated with diminishing hopes of the Federal Reserve making a dovish pivot any time soon. Yesterday’s minutes from the recent Federal Open Market Committee (FOMC) meeting didn’t include any thunderbolts, but they also didn’t deviate from the mostly hawkish stance investors have built into the market this month. Notably, there was no talk of disinflation, a word Fed Chairman Jerome Powell used in his press conference earlier this month that appeared to drive investor optimism at that moment.

Some analysts pointed to dovish language here and there in the minutes, but the main takeaway is that the FOMC is still hyper-focused on slaying the inflation dragon and prepared to bring its sharpest knife to the fight. More than one Fed official—names withheld—proposed a 50-basis-point hike, though the FOMC went with 25 basis points. If the next batch of inflation data come in hot, there could be growing pressure for the Fed to execute a 50-basis-point move at its March meeting.

Even if the Fed eventually slows or even pauses rate hikes, , the likely reason would be a serious deterioration in the economy. And that sort of unpleasant prospect could increase market volatility and bring further declines in stock prices despite easier monetary policy. So, the “Fed pivot” crowd on Wall Street might not actually be too pleased if it gets what it wishes for.

Keep watching economic data in coming weeks, especially inflation. And keep tabs on Fed speakers, two of whom are scheduled today. But understand that the Fed has pretty much set its course and is unlikely to deviate unless several months of data show signs of cooling.

Stocks in spotlight

Nvidia (NVDA) earnings beat Wall Street’s estimates, though revenue fell sharply from a year ago for the giant chip company as expected. One bright spot was better-than-expected gaming revenue. More importantly, perhaps, NVDA provided guidance that exceeded analysts’ estimates, and ultimately that helped send the stock up 9% in Thursday’s premarket trading.

As we’ve seen a lot this earnings season, investors are more focused on what’s next for companies, not what just happened, and punish or reward accordingly. NVDA was a beneficiary. On the other side of the fence, Walmart’s (WMT) strong quarterly results earlier this week were virtually ignored by investors focused on what many saw as weak guidance.

Domino’s (DPZ) and Papa John’s (PZZA): Two of the nation’s largest pizza restaurant chains both reported today and both easily sliced through Wall Street’s earnings expectations. For DPZ, the issue was revenue, which came up short of analyst forecasts. “We pride ourselves on being a work-in-progress brand and there is no better way to describe this period in our history,” DPZ said in its press release, adding it saw “significant pressure” on its 2022 U.S. delivery business. Some investors apparently aren’t willing to wait for the work in progress to reach a final stage. Domino’s shares fell more than 8% in premarket trading.

What to watch

Inflation benchmark: We don’t escape the week without more price data. Tomorrow morning before the open brings an inflation report the Fed follows most closely: Personal Consumption Expenditures (PCE) prices. The prices data are accompanied by personal income and personal spending, and it wouldn’t be surprising to see solid January numbers for those considering the sizzling path Retail Sales and Nonfarm Payrolls took in January. But with inflation the critical watchword, here’s current consensus on what analysts expect from these January PCE numbers:

  • Headline PCE: 0.4%, up from 0.1% in December
  • Core PCE: 0.4%, up from 0.3% in December

If consensus is correct, PCE prices will follow the upward movement of January consumer and producer prices. If so, it could be more ammunition for Fed hawks to send rates higher than the 5% to 5.25% terminal, or peak, rate projected in December’s FOMC dot-plot.

St. Louis Fed President James Bullard, not a voting member of the FOMC this year but a notable hawk, hinted Wednesday that the Fed’s target range may need to rise from the current 4.5% to 4.75% to between 5.25% and 5.5%.

Mood ring: The University of Michigan Consumer Sentiment Index is up three months in a row. Can tomorrow’s data extend this hat trick? The final February reading is due shortly after Friday’s open following the preliminary February headline of 66.4. That’s historically low, but up from last year’s under-50 nadir and finally edging above year-ago levels.

Market minutes

Here’s how the major indexes performed Wednesday:

  • The Dow Jones Industrial Average® ($DJI) fell 84 points, or 0.26%, to 33,045.
  • The Nasdaq Composite® ($COMP) increased 0.13% to 11,507.
  • The Russell 2000® (RUT) gained 0.34% to 1,894.
  • The S&P 500® index (SPX) dropped 6 points, or 0.16%, to 3,991.

The path of least resistance appeared to remain lower for two of the four major indexes yesterday, and it was the fourth-straight losing session for the SPX. While the steady selling that chipped away at Wall Street during Tuesday’s plunge eased somewhat Wednesday, buyers didn’t exactly clamor to take advantage of lower prices across most sectors.

However, Wednesday’s sector scorecard shifted from the day before as consumer discretionary—which got slammed Tuesday following weak forecasts from WMT and Home Depot (HD)—rebounded. HD actually rose Wednesday, perhaps in part from ideas it might be oversold, and WMT fell. Info tech also came out near the top, with Apple (AAPL) and Salesforce (CRM) gaining ground. Semiconductors, however, mostly fell ahead of NVDA’s earnings.

If you’re keeping track of market breadth, Wednesday was a mixed day. Advancing stocks led decliners 11-10 on the New York Stock Exchange (NYSE). The Treasury market continues to be the tail wagging the dog, and even slight declines in yields on Wednesday didn’t help stocks much considering yields remain at three-month highs pretty much across the board. A drop under 3.9% in the TNX, if it happens, might give stocks a psychological boost.

Talking technicalsWTI Crude Oil futures (/CL) dropped below their 50-day moving average this week and losses appeared to accelerate. The 50-day moving average has been near $77 per barrel for the last two weeks, and /CL had traded on both sides of it before plunging Wednesday. Not all the selling was technical. A hawkish Fed pushed the dollar higher—something that typically weighs on crude. Rising U.S. crude stocks, plummeting natural gas prices, and signs of falling crude demand as many U.S. refiners prepare for annual maintenance in coming weeks all hurt crude as well.

CHART OF THE DAY: CRUDE LOSES GRIP. WTI Crude Oil futures (/CL—candlesticks) fell below its 50-day moving average (red line) earlier this week and suffered heavy selling afterward, hitting three-week lows. The sell-off came after /CL once again bumped against its 100-day moving average (blue line), now around $80 per barrel. Front-month futures have made no progress pushing through that level over the last three months, keeping the long-term downtrend intact on the charts. Data source: CME Group. Chart source: The thinkorswim® platformFor illustrative purposes only. Past performance does not guarantee future results.

Thinking cap

Ideas to mull as you trade or invest

Steady state: The discredited “Steady State” theory of the universe said that the entire cosmos of stars and galaxies was unchanging. Few would suggest the Fed’s been that fixed in its view on rates, but it has been steady in recent months—arguably a big reason for Wall Street’s recent skid. The nearly 60-basis-point bump in the TNX over the last few weeks, accompanied by a 2% drop in the major stock indexes, probably reflects delayed investor acknowledgment that the Fed is sticking to its guns on rates. That doesn’t mean the market won’t stop looking for doves flying in the weeks ahead—for many, hope springs eternal that the Fed will eventually change its tune. But if the last few weeks taught investors anything, it’s the same old lesson: Don’t fight the Fed.


Attention all shoppers: This week’s earnings from WMT and HD were just the start. Retail reporting season perks up next week with expected results from Target (TGT), Ross Stores (ROST), Best Buy (BBY), Kroger (KR), and Macy’s (M). Remember—what happens in households and how much they spend often portends what’s next for the global economy. After all, consumer spending comprises roughly 70% of Gross Domestic Product (GDP). While Retail Sales did perk up in January, it’s important to note that we’re about to get confirmation from individual retailers on how their December quarter actually went. Government data showed that many consumers basically froze their spending in the retail economy that had been so robust since the pandemic.

Competition heats up: The forward SPX price-earnings (P/E) ratio remains at a relatively high 18 despite this week’s sell-off. A higher P/E for stocks often translates into less chance of gains, especially when earnings (the E in the P/E equation) are flat-to-lower. The elevated P/E also comes as stocks encounter serious competition for the first time in a while, Charles Schwab Chief Investment Strategist Liz Ann Sonders and Senior Investment Strategist Kevin Gordon noted in a column this week: “There is income in fixed income again, putting bonds back into play when compared to stocks. Compelling yields hadn’t been attractive relative to stocks’ earnings yields for nearly a decade. Consequently, higher yields are starting to challenge the attractiveness of the equity market’s valuation.” Sonders and Gordon also provided a handy valuation heat map that checks the current “temperatures” of various valuation models.


Feb. 24: January PCE Prices, January Personal Income and Personal Spending, January New Home Sales, and final February University of Michigan Consumer Sentiment Index

Feb. 27: January Durable Goods Orders and Pending Home Sales

Feb. 28: February Chicago PMI, February Consumer Confidence, and expected earnings from Target (TGT), Ross Stores (ROST), and HP (HPQ)

March 1: February ISM Manufacturing Index, January Construction Spending, and expected earnings from Kohl’s (KSS) and Lowe’s (LOW).

March 2: Preliminary Q4 Productivity and expected earnings from Anheuser-Busch (BUD), Best Buy (BBY), Kroger (KR), and Macy’s (M)


TD Ameritrade® commentary for educational purposes only. Member SIPC.


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