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- Stock Market Today: Futures edge lower as markets await key inflation data
Stock Market Today: Futures edge lower as markets await key inflation data
- Us stock index futures trade in negative territory ahead of the opening bell.
- January PCE inflation data will be watched closely by market participants.
- Poor performance of tech shares weigh on Nasdaq Composite.
S&P 500 futures fall 0.31%, Dow Jones futures drop 0.34%, and Nasdaq futures lose 0.25%.
S&P 500 (SPX), Dow Jones (DJIA), and Nasdaq (IXIC) indexes closed on Wednesday with a 0.17% loss, unchanged, and a 0.55% fall, respectively.
What to know before stock market opens
The Real Estate Sector rose 1.28% as the best-performing S&P 500 major sector on Wednesday. At the other extreme, the biggest decliner was the Communications Sector, with a 0.92% loss. The Technology Sector and the Health Care Sector both fell over 0.5% to round out the bottom of the day's sectoral performance.
Axon Enterprises (AXON) climbed 13.75% through the day, ending at $309.22. On the other hand, Viatris Inc. (VTRS) backslid 7.1% to close at $12.29.
Assessing the latest developments in financial markets, “S&P 500 (-0.17%) still experiencing little movement since Nvidia’s earnings last week. The latest decline means the index is still on track for a weekly loss, and there were larger falls for the NASDAQ (-0.55%) and the Magnificent 7 (-0.58%),” said Jim Reid, global head of economics and thematic research at Deutsche Bank, and continued:
“Meanwhile in Europe, the story was also one of losses yesterday, with the STOXX 600 down -0.35%. That said, the DAX (+0.25%) continued to outperform, posting a 6th consecutive advance and closing at a fresh all-time high.”
S&P 500 FAQs
What is the S&P 500?
The S&P 500 is a widely followed stock price index which measures the performance of 500 publicly owned companies, and is seen as a broad measure of the US stock market. Each company’s influence on the computation of the index is weighted based on market capitalization. This is calculated by multiplying the number of publicly traded shares of the company by the share price. The S&P 500 index has achieved impressive returns – $1.00 invested in 1970 would have yielded a return of almost $192.00 in 2022. The average annual return since its inception in 1957 has been 11.9%.
How are companies chosen to be included in the S&P 500?
Companies are selected by committee, unlike some other indexes where they are included based on set rules. Still, they must meet certain eligibility criteria, the most important of which is market capitalization, which must be greater than or equal to $12.7 billion. Other criteria include liquidity, domicile, public float, sector, financial viability, length of time publicly traded, and representation of the industries in the economy of the United States. The nine largest companies in the index account for 27.8% of the market capitalization of the index.
How can I trade the S&P 500?
There are a number of ways to trade the S&P 500. Most retail brokers and spread betting platforms allow traders to use Contracts for Difference (CFD) to place bets on the direction of the price. In addition, that can buy into Index, Mutual and Exchange Traded Funds (ETF) that track the price of the S&P 500. The most liquid of the ETFs is State Street Corporation’s SPY. The Chicago Mercantile Exchange (CME) offers futures contracts in the index and the Chicago Board of Options (CMOE) offers options as well as ETFs, inverse ETFs and leveraged ETFs.
What factors drive the S&P 500?
Many different factors drive the S&P 500 but mainly it is the aggregate performance of the component companies revealed in their quarterly and annual company earnings reports. US and global macroeconomic data also contributes as it impacts on investor sentiment, which if positive drives gains. The level of interest rates, set by the Federal Reserve (Fed), also influences the S&P 500 as it affects the cost of credit, on which many corporations are heavily reliant. Therefore, inflation can be a major driver as well as other metrics which impact the Fed decisions.
Focus shifts to PCE inflation data
The US Bureau of Economic Analysis downwardly revised the annualized Gross Domestic Product (GDP) growth of the US in the fourth quarter to 3.2% from 3.3% in the initial estimate. Personal Consumption Expenditures (PCE) Price Index, the Federal Reserve’s (Fed) preferred gauge of inflation, data will be scrutinized by market participants on Thursday. On a monthly basis, core PCE inflation is forecast to rise 0.4%, up from the 0.2% increase recorded in December.
US Core PCE Inflation: Federal Reserve preferred inflation gauge expected to accelerate in January on month.
The economic calendar will also feature on Thursday weekly Initial Jobless Claims for the week ending February 24, which is forecast to rise to 210,000 from 201,000 in the previous week.
The US Census Bureau reported on Tuesday that Durable Goods Orders declined by 6.1%, or $18 billion, to $276.7 billion in January. This reading followed the 0.3% decrease recorded in December and came in worse than the market expectation for a contraction of 4.5%.
New York Fed President John Williams said late Wednesday that the inflation outlook has improved and that his baseline scenario was for three rate cuts in 2024.
Fed on course to begin lowering rates at the June FOMC meeting – ABN Amro.
According to the CME FedWatch Tool, markets are nearly fully pricing in a no change in the Fed policy rate in March and see an 80% probability of another pause in May.
The Cooper Companies Inc. (COO), Autodesk Inc. (ADSK) and Veeva Systems Inc. (VEEV) will be among top companies that will release quarterly earnings after the closing bell on Thursday.
Inflation FAQs
What is inflation?
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
What is the Consumer Price Index (CPI)?
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
What is the impact of inflation on foreign exchange?
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
How does inflation influence the price of Gold?
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it.
Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
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