S&P 500; US Indexes Fundamental Daily Forecast – Stocks Retreat After Chance of Fed Rate Hike Increases

The three major stock index futures contracts are trading mixed shortly after the cash market opening. Shortly before the regular session opening, they were trading higher and in a position to breakout to the upside following the release of a pair of better-than-expected U.S. economic reports. Traders are now waiting for President Trump to announce his tax reform plan.

Investors started to return to stocks on Monday after early session weakness was fueled by North Korea’s launch of a missile over Japan. Investors saw value and shrugged off any further threats by North Korea. This led to a follow-through rally during the pre-market session and a surge to the upside after the economic data was released.

In other news, the ADP National Employment report showed the private sector added 237,000 jobs in August. Traders had priced in an 185,000 increase.

Additionally, the second estimate for gross domestic product data in the second quarter showed the U.S. economy grew by 3.0 percent, more than the expected increase of 2.7 percent and the previous reading of 2.6 percent.

At first, investors read the news as bullish for stocks, but sellers came in to stop the rally after U.S. Treasury yields began to rise. It appears that stock traders were spooked by the idea that a Federal Reserve rate hike later in the year is still on the table, given the strength of the economic data.

According to the CME Group’s FedWatch tool, market expectations for a rate hike in December were at 41 percent on Wednesday, up from 34 percent on Tuesday.

Stocks could still finish strong if President Trump’s tax reform speech contains some bullish surprises. Traders may have priced in most of the news because the story has been out there for about a week so unexpected news may trigger a bullish response.