U.S. Stocks May Lack Direction After Offsetting Early August Sell-Off

The major U.S. index futures are currently pointing to a roughly flat open on Monday, with stocks likely to show a lack of direction after turning in a strong performance last Friday.

Uncertainty about the near-term outlook for the markets may keep some traders on the sidelines after last week’s strong gains lifted the Dow and the S&P 500 back within striking distance of the record highs set in mid-July.

The major averages have more than offset the steep drop seen early this month, as optimism about interest rate cuts by the Federal Reserve has overshadowed concerns about the economic outlook.

Comments from Fed Chair Jerome Powell last Friday all but confirmed the central bank will cut rates next month, although there remains some uncertainty about how quickly rates will be lowered.

According to CME Group’s FedWatch Tool, there is a 65.5 percent chance of a quarter point rate cut at the September 17-18 meeting and a 34.5 percent chance of a half point rate cut.

On the U.S. economic front, the Commerce Department released a report showing a sharp increase by new orders for U.S. manufactured durable goods in the month of July.

Following the pullback seen over the course of Thursday’s session, stocks showed a strong move back to the upside during trading on Friday. The major averages all moved sharply higher, with the Dow and the S&P 500 reaching their best closing levels since reaching record highs in mid-July.

The major averages gave back ground after an early rally but showed another notable advance late in the session. The Dow jumped 462.30 points or 1.1 percent to 41,175.08, the Nasdaq surged 258.44 points or 1.5 percent to 17,877.79 and the S&P shot up 63.97 points or 1.2 percent to 5,634.61.

With the strong upward move on the day, the major averages all closed sharply higher for the week. The Dow shot up by 1.3 percent, the Nasdaq jumped by 1.4 percent and the S&P 500 surged by 1.5 percent.

The rebound on Wall Street came as highly anticipated remarks by Federal Reserve Chair Jerome Powell indicated the central bank is prepared to begin lowering interest rates.

“The time has come for policy to adjust,” Powell said at the Jackson Hole Economic Symposium, although he noted the “timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.”

Powell’s determination that it is time for the Fed to begin cutting rates comes as his “confidence has grown that inflation is on a sustainable path back to 2 percent.”

Fed officials have repeatedly said they need “greater confidence” inflation is moving sustainably toward the central bank’s 2 percent target before they would consider cutting rates.

Powell said inflation is now much closer to the Fed’s objective, with consumer prices rising 2.5 percent year-over-year in July, and noted progress toward 2 percent has resumed after a pause earlier this year.

The remarks by Powell came as recent inflation data has increased confidence the Fed will cut interest rates at its next monetary policy meeting in September.

“Chair Powell just rang the bell to start rate cuts,” said MBA SVP and Chief Economist Mike Fratantoni. “He was careful to note that incoming data will inform the pace of cuts, but a cut is coming in September, and this cut will be the first in a series that should bring the federal funds target down significantly over the next 18 months.”

The minutes of the Fed’s late July meeting, released on Wednesday, revealed that the “vast majority” of participants believed it would “likely be appropriate” to lower rates at the next meeting if inflation data continued to come in “about as expected.”

In U.S. economic news, a report released by the Commerce Department showed a substantial increase by new home sales in the U.S. in the month of July.

The Commerce Department said new home sales spiked by 10.6 percent to an annual rate of 739,000 in July after rising by 0.3 percent to an upwardly revised rate of 668,000 in June.

Economists had expected new home sales to jump by 2.1 percent to an annual rate of 630,000 from the 617,000 originally reported for the previous month.

With the much bigger than expected surge, new home sales reached their highest annual rate since hitting 741,000 in May 2023.

Airline stocks showed a substantial move to the upside on the day, with the NYSE Arca Airline Index soaring by 3.7 percent.

Considerable strength was also visible among housing stocks, as reflected by the 3.7 percent spike by the Philadelphia Housing Sector Index.

The rally by housing stocks reflected optimism about lower interest rates and a positive reaction to the spike by new home sales.

Oil service stocks also saw significant strength as the price of the crude oil continued to recover from a recent sell-off, driving the Philadelphia Oil Service Index up by 3.1 percent.

Networking, semiconductor and telecom stocks also saw significant strength, moving notably higher along with most of the other major sectors.

Commodity, Currency Markets

Crude oil futures are soaring $2.20 to $77.03 a barrel after surging $1.82 to $74.83 a barrel last Friday. Meanwhile, after jumping $29.10 to $2,522.60 an ounce in the previous session, gold futures are climbing $13.50 to $2,559.80 an ounce.

On the currency front, the U.S. dollar is trading at 144.12 yen versus the 144.37 yen it fetched at the close of New York trading on Friday. Against the euro, the dollar is trading at $1.1161 compared to last Friday’s $1.1192.

Asia

Asian stocks ended mostly higher on Monday, even as Japanese markets fell notably as the dollar sank to a three-week trough against the yen on a dovish Fed outlook and Bank of Japan Governor Kazuo Ueda’s hawkish remarks on Friday reaffirming his resolve to raise interest rates.

The dollar was under selling pressure and bond yields softened after Federal Reserve Chair Jerome Powell signaled imminent interest rate cuts.

Gold firmed up and oil jumped about 1 percent in Asian trading after high-level Gaze ceasefire talks in Cairo ended without a final agreement.

Israeli and Hezbollah forces engaged in extensive exchanges of fire early Sunday morning along the Israel-Lebanon border, marking a significant escalation in their longstanding conflict.

China’s Shanghai Composite Index fluctuated before finishing marginally higher at 2,855.52. Hong Kong’s Hang Seng Index jumped 1.1 percent to 17,798.73, extending a three-week winning run.

Japan’s Nikkei 225 Index dropped 0.7 percent to 38,110.22 as the yen jumped on a broadly weaker dollar, weighing on exporter stocks. The broader Topix Index settled 0.9 percent lower at 2,661.41.

Decliners were led by transportation equipment, bank and rubber product issues. Department store operator Isetan Mitsukoshi Holdings slumped 6.5 percent and Takashimaya declined 1.3 percent.

Seoul stocks ended lower for a second day running, with the Kospi edging down 0.1 percent to 2,698.01. Tech stocks led losses, with Samsung Electronics and SK Hynix losing 2.1 percent and 3.2 percent, respectively.

The local currency rose to its highest level in over five months against the U.S. dollar on Powell’s dovish remarks.

Australian markets saw broad-based gains to reach a three-week high as investors cheered the prospect of a September rate cut by the Federal Reserve.

The benchmark S&P/ASX 200 Index climbed 0.8 percent to 8,084.50, marking its highest level since August 1. The broader All Ordinaries Index gained 0.8 percent to close at 8,311.50.

Across the Tasman, New Zealand’s benchmark S&P/NZX-50 Index rose 0.5 percent to 12,589.83.

Europe

European stocks are turning in a mixed performance on Monday after three straight sessions of gains. Sentiment was dented after a survey showed confidence among companies in Germany saw a downward trend in August.

The ifo Business Climate Index fell to a six-month low of 86.6 in August from 87.0 in July, as current and future situations were weakened, according to survey data from the ifo Institute. The expected reading was 86.0. The latest reading signaled that the German economy is increasingly falling into crisis.

Investors also looked ahead to the release of a slew of key German and Eurozone data this week that will be crucial ahead of the ECB’s interest-rate decision in September.

EU flash inflation data for August will be key for the European Central Bank as it considers its next interest-rate move.

Markets are fully priced for a quarter-point ECB rate cut next month, and a total 163 basis points of easing by the end of 2025.

The pan European STOXX 600 Index is up by 0.1 percent at 518.62 after reaching its best closing level in almost a month Friday.

The German DAX Index is down by 0.1 percent, while France’s CAC 40 Index is up 0.3 percent. The U.K. markets are closed for a national holiday.

In corporate news, P/F Bakkafrost has slumped after the Faroese salmon farming firm reported second-quarter revenue below estimates.

U.S. Economic News

With orders for transportation equipment showing a substantial rebound, the Commerce Department released a report on Monday showing a sharp increase by new orders for U.S. manufactured durable goods in the month of July.

The Commerce Department said durable goods orders spiked by 9.9 percent in July after tumbling by a revised 6.9 percent in June.

Economists had expected durable goods orders to jump by 4.0 percent compared to the 6.7 percent plunge that had been reported for the previous month.

The substantial rebound by durable goods orders came as orders for transportation equipment skyrocketed by 34.8 percent in July after plummeting by 20.6 percent in June.

Excluding the surge in orders for transportation equipment, durable goods orders dipped by 0.2 percent in July after inching up by 0.1 percent in June. Ex-transportation orders were expected to come in unchanged.

Stocks In Focus

Shares of SolarEdge (SEDG) are seeing significant pre-market strength after the smart energy technology company announced Zvi Lando has stepped down as CEO. Ronen Faier, who previously served as CFO, has been appointed interim CEO.

Brazilian oil giant Petrobras (PBR) may also move to the upside after Morgan Stanley upgraded its rating on the company’s stock to Overweight from Equal Weight.

On the other hand, shares of PDD Holdings (PDD) are moving sharply lower in pre-market trading after the Chinese online retailer reported weaker than expected second quarter revenues.