Investors Shedding Risky NASDAQ Composite Growth Companies for Traditionally Defensive Firms

The major U.S. stock index futures contracts are drifting higher during the premarket session, leading to calls for early strength in the cash market. Volume is below average as many of the major players – pensions, mutual funds and hedge funds – have moved to the sidelines ahead of Wednesday’s Fed minutes and Thursday’s Thanksgiving holiday.

Investors are primarily reacting to worries surrounding the stricter COVID-19 restrictions in China as their focus shifts to slower world growth. This news is helping to put a lid on prices, while surprisingly less-hawkish chatter from a Fed official is providing some support.

At 13:45 GMT, blue chip Dow Jones Industrial Average futures are trading 33854.00, up 119.00 or +0.35%. The benchmark S&P 500 Index is at 3973.00, up 15.00 or +0.38% and the tech-weighted NASDAQ Composite is trading 11621.00, up 33.00 or +0.28%.

Investors Adjusting Investing Strategies in Reaction to China’s COVID Curbs

China strengthened its fight against COVID-19 with Beijing shutting parks, malls and museums while other cities resumed mass testing, amid concerns about the economy and fading hopes of a quick reopening.

China also reported its first deaths in the mainland from COVID since May over the weekend. The news prompted fears among investors that the country could bring back restrictions meant to slow the virus’s spread, which would hurt business.

Investors are also saying that the COVID news is forcing money managers to make adjustments to their portfolios. Analysis of Monday’s trading activity showed investors were moving away from growth stocks and toward defensive sectors like health care and utilities.

Investors Eyeing Fed Speakers for Clues About Interest Rates

On Tuesday, several Federal Reserve officials are set to speak, including Kansas City Fed President Esther George and St. Louis Fed President James Bullard. On Wednesday, the minutes from the Fed’s November meeting could offer more clarity on the Fed’s monetary tightening path.

Cleveland Federal Reserve President Loretta Mester said Monday inflation will need to show more signs of progress before she’s ready to stop advocating for interest rate increases.

While Mester, a voting member of the rate-setting panel supported a smaller rate hike in December, San Francisco Fed President Mary Daily stressed on Monday the need to be careful to avoid a “painful downturn”.

Daily Forecast

Thin trading conditions could lead to extreme moves and excessive volatility on Tuesday with St. Louis Fed President James Bullard possibility providing the catalyst for the move.

Last week, the hawkish Bullard drove stock prices lower after he said the Fed’s target policy needs to rise to at least a range between 5.00% and 5.25% from the current level of just below 4.00% to be “sufficiently restrictive” to curb inflation.

We’re looking for more of the same if Bullard reiterates his bullish stance.