Testimony by Fed Chair Powell could set the tone this week in the S&P 500 with his remarks about inflation and its rate-hiking campaign going forward.
US stock index futures are edging slightly better early Monday as investors braced for a week filled with labor market data and Federal Reserve officials’ latest monetary policy assessment. Traders hope Fed Chair Chief Jerome Powell offers clues as to whether a 50-basis point rate hike is on the table.
At 06:00 GMT, the blue-chip Dow Jones Industrial Average is trading 33426.00, up 12.00 or +0.04%. The benchmark S&P 500 Index is at 4055.75, up 6.00 or +0.15%, and the tech-weighted NASDAQ Composite is trading at 12343.50, up 32.25 or +0.265.
The Dow, S&P 500, and NASDAQ posted substantial gains on Friday while the benchmark 10-year Treasury note yield straddled the psychological 4% level. These gains also helped the major averages to close higher for the week. CNBC wrote that an upward move in the 10-year yield raises consumer borrowing costs and could signal a drop in investor confidence.
Tuesday and Wednesday’s Congressional Testimony by Federal Reserve Chair Jerome Powell could set the tone this week with his remarks about inflation and its rate-hiking campaign going forward.
Traders will also be paying close attention to Friday’s February jobs report, which follows January’s blowout figures showing that the economy added 517,000 non-farm payrolls. Economists polled by Dow Jones are expecting 225,000 jobs added last month.
Looking ahead to Monday, traders can react to the latest data on factory orders released after the opening bell. According to consensus estimates from Dow Jones, economists expect a decline of 1.8% in January. That’s compared to a 1.8% gain in the prior reading.
In 2022, investors flocked to defensive stocks like consumer staples, utilities, and healthcare because they believed the aggressive Fed rate hikes would trigger a recession. This year, the move may pose a problem for investors.
The Fed is expected to remain aggressive in its quest to tame inflation, but the problem for investors is that the economy is still strong. They are supposed to be taking protection against an economic downturn that may not even take place.
Traders may react to the Factory Orders report at 15:00 GMT, but the move may be muted because most investors will be eyeing the U.S. 10-year U.S. Treasury yield and Powell’s testimony.
I believe the yields will have a more significant influence on the market, especially if investors start to buy bonds ahead of Powell’s testimony. This will drive down yields and make stocks more attractive.
James Hyerczyk is a U.S. based seasoned technical analyst and educator with over 40 years of experience in market analysis and trading, specializing in chart patterns and price movement. He is the author of two books on technical analysis and has a background in both futures and stock markets.