NASDAQ 100, Dow Jones, S&P 500: Struggling as Investors Await Clarity on Fed Policy

Highlights

• Stocks struggle to maintain positive momentum after Fed’s rate hike decision.
• U.S. housing starts surpass expectations, indicating a robust housing sector.
• Upgrades in Philip Morris and U.S. Foods drive market optimism.

Overview

Stocks are struggling on Tuesday to maintain the positive momentum from last week’s exceptional performance. The decision by the Federal Reserve to skip a rate hike in June was well-received by investors. Federal Reserve Chairman Jerome Powell confirmed that the central bank has yet to finalize its policy for the upcoming July meeting. However, policymakers anticipate two more quarter-point rate increases later this year, breaking the Fed’s streak of ten consecutive interest rate hikes.

Traders Monitoring Sentiment Ahead of Fed Speakers

Despite Powell’s emphasis on data-dependent future Fed policy, stocks have been on an upward trend. Market participants are closely monitoring how the strong market sentiment from the previous week will hold up in a week characterized by a lack of economic data. This week, New York Fed President John Williams and Fed Vice Chair for Supervision Michael Barr will participate in a corporate governance event, while Fed Chair Powell is scheduled to testify before Congress.

US Housing Numbers Beat Expectations

In May, U.S. housing starts surpassed economists’ expectations, as reported by the Census Bureau. With 1.63 million starts and 1.49 million new building permits, the numbers exceeded projections. The May housing starts figure was 21.7% higher than the revised April estimate and demonstrated a 5.7% year-over-year increase. This surge in housing starts suggests that the home construction sector is on track for its strongest month since January.

Home Construction ETF, Stocks Rise

The iShares U.S. Home Construction ETF (ITB) has been performing exceptionally well in June, with a 10.35% increase. This places the ETF on pace for its best monthly gain since January, when it rallied 14.79%. Notably, leading companies in the fund, including Beacon Roofing, TopBuild, and KB Home, have seen gains of 17% or more this month.

Philip Morris Upgraded by Citi

In premarket trading, Philip Morris shares rose by 1.8% following a bullish upgrade from Citi. Analyst Simon Hales upgraded the stock to buy from neutral and raised the price target by $8 to $117. This new target implies a potential gain of 23.3% over the next year. The upgrade reflects optimism regarding the underappreciated value of Philip Morris’ next-generation products (NGPs). While tobacco stocks have faced challenges due to the low-growth outlook for cigarettes and ESG considerations, the significant contribution of NGPs to the industry, including Philip Morris, suggests that investors may have undervalued this evolving segment.

US Foods Rises on Upgrade

Additionally, U.S. Foods shares rose by over 1% after an upgrade by Morgan Stanley. Analyst Brian Harbour upgraded the stock to overweight from equal weight and increased the price target by $8 to $54. This new target implies a potential rally of 29.7% from the previous closing price. Harbour emphasized the fundamental factors that favor U.S. Foods and believes they will continue to drive the narrative surrounding the stock.

FedEx Earnings on Tap

Investors will also be paying close attention to the quarterly report from shipping giant FedEx, scheduled to be released after the closing bell. The earnings report will provide insights into the company’s performance and may impact market sentiment.

Fed Rate Hike Concerns Weigh

In conclusion, stocks faced challenges in maintaining their positive momentum on Tuesday. The Federal Reserve’s decision to skip a rate hike in June was received positively by investors. U.S. housing starts exceeded expectations, highlighting the strength of the home construction sector. Upgrades in Philip Morris and U.S. Foods have generated optimism among market participants. Looking ahead, the earnings report from FedEx will be a key focal point for investors.