NEW YORK — Early indications suggest U.S. stock could strive to retain the winning momentum intact, although key catalysts scheduled for the next couple of sessions could leave investors cautious. Some of the Smid-cap earnings have come in better than expected, triggering a strong upward move in the premarket. That said, sentiment toward mega-caps remains muted, and the Nasdaq futures are underperforming the rest of its major counterparts.
The two-day monetary policy meeting of the Federal Reserve kicks off on Tuesday, with investors more focused on what the central bank has to suggest regarding the future rate trajectory.
Cues From Monday’s Trading
The oversold levels of the market pulled in bargain hunters on Monday, and the buying was supported by some positive earnings reports, oil’s sharp pullback, and expectations of a dovish message from the Federal Reserve. The major indices opened higher and stayed above the unchanged line throughout the session before ending with gains in excess of 1% each.
The Dow Industrials posted its biggest one-day advance since early June, with all but two of the index components closing higher for the session. With Monday’s advance, the S&P 500 moved out of the correction territory, while the Nasdaq Composite, with an 11.5% drop from its mid-July highs, continues to be in correction territory.
Small-caps, meanwhile, saw volatility in the morning before moving decisively higher by the mid-session.
The market witnessed a broad-based rally, with communication services, consumer discretionary and staple, financial, industrial, and IT stocks leading from the front.
Analyst Color
“The market climbs a wall of worry, so there is always something to scare investors,” said LPL Financial strategists Jeffrey Buchbinder, Lawrence Gillum, Quincy Krosby, and Jeffrey Roach.
. “Today investors may feel like that wall is unusually tall, given stiffening headwinds facing the economy, including the effects of rising rates, and two wars overseas as the S&P 500 enters correction territory (down 10% from its recent high),” they added.
The analysts, however, expect a strong job market, cooling inflation, the end of Fed rate hikes, stable interest rates, and growing corporate profits to help stocks overcome these worries and keep this young bull market going.
“And we believe the macroeconomic environment and seasonal tailwinds will provide enough support for stocks to move modestly higher over the balance of the year, though the path may be bumpy,” they added.
Upcoming Economic Data
S&P Global is scheduled to release its house price survey for August at 9 a.m. The S&P/Case-Shiller 20-city composite house price index is expected to rise a seasonally unadjusted 1.6% year-over-year in August, notably faster than the 0.1% increase in July.
The Federal House Finance Agency’s house price index, also due at 9 a.m. EDT, may have increased 0.5% month-over-month in August following 0.8% growth.
The ISM Chicago will release the results of its business barometer survey at 10 a.m. EDT. The purchasing managers’ index is expected to come in at 45 for October, suggesting continued contraction, although improving slightly from the September reading of 44.1. A reading below 50 points to contraction.
The Conference Board is scheduled to release its consumer confidence index at 10 a.m. EDT. The consensus estimate calls for a slight decline in the index from 103 in September to 100 in October.
The Treasury is set to auction 52-week bills at 11 a.m. EDT.
Commodities, Bonds, Other Global Equity Markets
Crude oil futures rallied about 1% to $83.13 in early European session on Tuesday following Monday’s 3.78% plunge. The previous session’s decline reflected easing supply concerns that were originally set in motion by the tensions in the Middle East following the Israel-Hamas conflict.
The benchmark 10-year Treasury note fell 0.059 percentage points to 4.818% on Tuesday.
The major Asian markets closed on a mixed note as traders in the region digested the positive cues from the U.S. overnight and weak business activity data from China. The National Bureau of Statistics of China’s manufacturing purchasing managers’ index fell into contraction territory, while the services activity index came in less than expected. The data underlined the soft patch that has become entrenched in the Chinese economy.
European stocks traded moderately higher in late-morning trading on Tuesday.
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Edited by Jason Reed and Newsdesk Manager
