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Futures

Wall Street's Futures Plunge Amid Uncertainty

2024-11-15

After a negative session on Wall Street, futures experienced significant losses. The previously witnessed risk-on rally from last week began to cool, and investors started to second-guess their bets on a December rate cut. This uncertainty was further exacerbated by the long-term outlook for inflation in the face of a potential second Donald Trump presidency. Trump is widely expected to implement more inflationary policies, adding to the complexity of the economic landscape.

Key Factors Influencing Futures

Fed's Stance and Data

Fed Chair Jerome Powell's warning on Thursday played a crucial role. He emphasized that the strength of the U.S. economy would allow the Fed to take its time in deciding on interest rate cuts. While painting a positive picture of the economy, Powell also flagged caution over sticky inflation. This was followed by data showing that producer price index inflation grew more than expected in October, preceded by a consumer price index print that indicated inflation remained sticky. The combination of Powell's comments and the data led traders to sharply pare their bets on a December rate cut. CME Fedwatch showed that traders were pricing in a 51.7% chance of rates remaining unchanged and a 48.3% chance of a cut.

Trump's Policies and Their Impact

Trump's protectionist stance on trade and immigration is expected to keep inflation underpinned in the coming years. This has added to the uncertainty surrounding the long-term outlook for rates. As a result, Wall Street fell from record highs on this notion, while the dollar and Treasury yields rose sharply.

Aftermarket Movers

Among major aftermarket movers, Applied Materials Inc (NASDAQ:AMAT) fell nearly 6% after its quarterly earnings missed some street expectations. Slowing revenue from China was a key point of contention. On the other hand, Domino's Pizza Inc (NYSE:DPZ) surged over 9% after Berkshire Hathaway (NYSE:BRKa) disclosed a stake in the firm. Pool Corporation (NASDAQ:POOL) also rose 5.6% after Berkshire disclosed a stake. These movements highlight the diverse reactions of different companies in the market.

Stock futures showed a slightly upward trend on Sunday night as the financial world gears up for a significant earnings week. Investors are closely monitoring the situation while keeping an eye on the seemingly waning post-election rally. The Dow Jones Industrial Average futures dipped by 16 points, which is less than 0.1%. In contrast, S&P futures witnessed a 0.1% increase, and Nasdaq 100 futures gained 0.2%. This movement follows a challenging week for the major benchmarks, which have retreated from their peaks achieved after President-elect Donald Trump's victory. The Dow Jones Industrial Average ended the week at 43,444.99 points after initially surging past 44,000 for the first time. The S&P 500 also slipped last week to close at 5,870.62, and the tech-heavy Nasdaq Composite dipped to 18,680.12.

Interest Rate Concerns and Market Impact

Concerns regarding the trajectory of interest rates continue to dominate investors' thoughts. This is particularly evident after Federal Reserve Chair Jerome Powell stated on Thursday that the central bank is not in a rush to cut rates given the strong economic growth and a stable labor market. These factors led to last week's selloff. According to the CME FedWatch Tool, most investors are now anticipating a year-end overnight lending rate within the range of 4.25% to 4.50%.The next crucial event for the market this week will be Nvidia's earnings release on Wednesday. Traders will be closely observing the guidance provided regarding the company's demand for its Blackwell AI chips. Additionally, earnings from Palo Alto Networks and several major retailers such as Walmart, Target, and Ross are also scheduled for this week. As of Friday, according to FactSet's John Butters, with 93% of S&P 500 companies having reported results, three-quarters of them have exceeded earnings per share (EPS) expectations, and 61% have reported a positive revenue surprise.

Bank of America's Outlook

Bank of America has updated its year-end S&P 500 target to 6,000. Analyst Savita Subramanian stated in a Friday note to clients that overall, they see limited near-term upside to the cap-weighted S&P 500 and prefer the equal-weighted index. However, their bear market signposts, which typically precede an S&P 500 peak, are not indicating a high risk of an imminent bear market. Subramanian added that the broad-market index is still statistically expensive based on almost every metric. Despite this, she believes that the S&P 500 is of higher quality, less leveraged, and more asset-light compared to previous decades, suggesting that Wall Street's forecasts based on its current premium may be overly pessimistic. With long-term growth expectations for megacap tech at a record high, the firm anticipates a potential market rotation into cyclical and high dividend-yielding stocks, especially as a Donald Trump administration is expected to support an increase in U.S. GDP growth and potentially inflation. The S&P 500 ended last week down 1.3% at 5,870.62 points.

Futures Openings and Market Start

Futures tied to the Dow Jones Industrial Average edged up by 6 points, hovering just above flat. S&P futures added less than 0.1%, and Nasdaq 100 futures gained 0.1%. This indicates a relatively stable start to the week in the stock futures market.