U.S. Stocks May Lack Direction Following Yesterday’s Rally

The major U.S. index futures are currently pointing to a roughly flat open on Friday, with stocks likely to show a lack of direction following the rally seen in the previous session.

Traders may take a breather following the surge during Thursday’s trading, which lifted the Dow and the S&P 500 to new record closing highs.

With the Federal Reserve’s first interest rate cut now in the rearview mirror, traders may also be questioning what will be the next catalyst for the markets.

A lack of major U.S. economic data is also likely to keep traders on the sidelines ahead of the release of several key reports next week.

While the Fed has already signaled plans to continue lowering rates in the coming months, the data could still impact market sentiment.

Reports on durable goods orders, new home sales and consumer confidence are likely to attract attention next week along with a report on personal income and spending that includes the Fed’s preferred inflation gauge.

After ending Wednesday’s session moderately lower following late-day volatility, stocks moved sharply higher during trading on Thursday. The major averages all showed strong moves to the upside, with the Dow and the S&P 500 reaching new record closing highs.

The major averages pulled back off their best levels late in the trading session but remained firmly positive. The Dow jumped 522.09 points or 1.3 percent to 42,025.19, the Nasdaq soared 440.68 points or 2.5 percent to 18,013.96 and the S&P 500 surged 95.38 points or 1.7 percent to 5,713.64.

The rally on Wall Street came as traders continued to digest the Federal Reserve’s decision on Wednesday to slash interest rates by half a percentage point.

With the Fed saying officials have gained greater confidence inflation is moving sustainably toward its 2 percent target, the central bank lowered the target range for the federal funds rate by 50 basis points to 4.75 to 5.00 percent.

The Fed was almost universally expected to cut rates for the first time since March 2020, but there was some debate over whether it would lower rates by 25 or 50 basis points.

Fed officials also forecast continued rate cuts over the coming months and into next year, generating optimism the central bank will be able to engineer a soft landing for the economy.

Adding to the optimism about the economy, the Labor Department released a report showing first-time claims for U.S. unemployment benefits unexpectedly fell to a nearly four-month low in the week ended September 14th.

The report said initial jobless claims slid to 219,000, a decrease of 12,000 from the previous week’s revised level of 231,000.

Economists had expected jobless claims to come in unchanged compared to the 230,000 originally reported for the previous week.

With the unexpected decline, jobless claims fell to their lowest level since hitting 216,000 in the week ended May 18th.

Semiconductor stocks turned in some of the market’s best performances on the day, with the Philadelphia Semiconductor Index soaring by 4.3 percent.

Substantial strength was also visible among steel stocks, as reflected by the 3.5 percent spike by the NYSE Arca Steel Index. The index ended the day at its best closing level in over a month.

Networking stocks also showed a significant move to the upside, driving the NYSE Arca Networking Index up by 3.1 percent to a record closing high.

Banking, oil service, and housing stocks also saw considerable strength on the day, moving higher along with most of the other major sectors.

Commodity, Currency Markets

Crude oil futures are slipping $0.30 to $71.65 a barrel after jumping $1.04 to $71.95 a barrel on Thursday. Meanwhile, after climbing $16 to $2,614.60 an ounce in the previous session, gold futures are surging $28.60 to $2,643.20 an ounce.

On the currency front, the U.S. dollar is trading at 143.91 yen versus the 142.62 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.1168 compared to yesterday’s $1.1161.

Asia

Asian stocks closed broadly higher on Friday, although most of the markets in the region turned a bit subdued and pared early gains as the day progressed. The undertone remained positive, with investors continuing to cheer the Federal Reserve’s decision to cut interest rates by 50 basis points.

The Japanese market outperformed despite paring some gains after the Bank of Japan decided to hold rates unchanged. The Nikkei 225 Index jumped 568.58 points or 1.5 percent to 37,723.91.

Tokai Carbon, Resonac Holding Corp, Kawasaki Heavy Industries, Tokyo Electron, Fujikura, Mitsui, Fast Retailing, Furukawa Electric, Fanuc Corp, Sumco Corp and Mitsubishi UFJ Financial were among the major gainers in the Japanese market.

NTT Data Corp, Kansai Electric Power, Keisei Elecgric Railway, Shimizu Corp., Taisei Corp and Tobu Railway were among the notable losers.

The Bank of Japan maintained its benchmark rate unchanged as widely expected on Friday. In a unanimous vote, the Policy Board decided to maintain the uncollateralized overnight call rate to remain at around 0.25 percent. The BoJ had ended its negative interest rate policy in March.

In the statement, the BoJ said the economy has recovered moderately, although some weakness has been in part.

Capital Economics’ economist Marcel Thieliant predicted the BoJ will hike its policy rate once more by a quarter point at its October meeting.

Data from the Ministry of Internal Affairs & Communications said the annual inflation in Japan rose to 3 percent in August (the highest level since October 23) from 2.8 percent in the prior three months. On monthly basis, the CPI rose by 0.5 percent in August after a 0.2 percent increase in July.

The core consumer price index in Japan increased by 2.8 percent year-on-year in August, the highest reading since February.

Chinese stocks struggled a bit after the People’s Bank of China kept its benchmark loan prime rate unchanged. The Shanghai Composite Index ended at 2,736.81, little changed from its previous closing level.

China retained its benchmark lending rates on Friday even after the Federal Reserve reduced its rate by half a percentage point this week.

The People’s Bank of China kept its one-year loan prime rate unchanged at 3.35 percent. Similarly, the five-year LPR, the benchmark for mortgage rates, was retained at 3.85 percent. The bank last reduced the LPR in July, by 10 basis points.

Hong Kong’s Hang Seng settled with a gain of 245.41 points or 1.4 percent at 18,258.57, nearly 100 points off the session’s high of 18,355.15.

Australian benchmark S&P/ASX 200 Index, which rose to a record high of 8,246.20, ended the day at 8,209.50, gaining 17.60 points or 0.2 percent. The broader All Ordinaries Index settled with a gain of 20.20 points or 0.2 percent at 8,437.20, nearly 40 points off the day’s high of 8,474.10.

Seek, Domino’s Pizza Enterprises, Super Retail Group, Carsales.com, James Hardie Industries, Bluescope Steel, Reece, Seven Group Holdings and Flight Centre gained 2 to 4 percent.

Telix Pharma soared more than 8 percent. Regis Resources, Aussie Broadband and James Hardie Industries also closed notably higher. Bank stocks closed with modest gains.

IGO, Mineral Resources, Computershare, Sonic Healthcare, Orica and Suncorp were among the notable losers.

South Korea’s KOSPI closed up 12.57 points or 0.5 percent at 2,593.37, with technology stocks finding good support. Hitron Systems, SNT Dynamics, Yuhan, Sajo Seafood, Boryung Pharma, JW Holdings and YoungPoong soared 12 to 30 percent.

Markets in Singapore, New Zealand and Indonesia closed weak, while the Malaysian market ended modestly higher.

Europe

European stocks have moved to the downside on Friday, with investors assessing the likely impact of the monetary policy and interest rate moves by major central banks on the economy.

Automobile stocks are among the notable losers. Shares from the luxury and consumer durable sectors are also finding the going a bit tough so far.

While the U.K.’s FTSE 100 Index has slid by 0.8 percent, the French CAC 40 Index and the German DAX Index are both down by 0.7 percent.

In the German market, Mercedez-Benz is down nearly 8 percent, weighed down by a downward revision in the company’s financial forecast for the year due to deterioration of its business in China.

Other automobile stocks Porsche, Volkswagen, Continental, Daimler Truck Holding are also down sharply on selling pressure.

Infineon, Adidas, Merck, Deutsche Post, Puma, Sartorius, Brenntag and Fresenius are among the other notable losers in the market.

Among the gainers, Rheinmetall is climbing nearly 3 percent. E.ON, Deutsche Boerse, MTU Aero Engines, Allianz, Symrise and Hannover Rueck are up 0.7 to 1.5 percent.

In the French market, Kering, Hermes International, LVMH, Stellantis and Edenred are down 2 to 3.5 percent.

Capgemini, Unibail Rodamco, Renault, Eurofins Scientific, Essilor, TotalEnergies and L’Oreal are also notably lower.

Teleperformance, Engie, Orange, AXA, Veolia, Safran, Publicis Groupe and Thales are up in positive territory.

In the U.K. market, Burberry Group is down 4.7 percent following a rating downgrade by Jefferies. Kingfisher, Hikma Pharmaceutical, Antofagasta, Croda International, B&M European Value Retail, RightMove, Entain, Frasers Group and Standard Chartered are down 2 to 3 percent.

On the economic front, German producer prices registered an annual decrease of 0.8 percent in August, the same as in July, data from Destatis showed. The expected decline was 1 percent. Prices have been falling since July 2023.

The overall decline in August was largely due to lower energy prices, which were 4.6 percent cheaper compared to last year. Lower natural gas and electricity prices had the biggest influence on energy prices.

Month-on-month, producer prices rose slightly and at a steady pace of 0.2 percent in August, while prices were expected to remain flat.

Confidence among French manufacturers remained stable in September after strengthening in the previous month, monthly data from the statistical office INSEE revealed Friday.

The manufacturing sentiment index stood at 99.0 in September, the same as in August, and remained just below its long-term average of 100. That was in line with expectations.

U.K. retail sales grew more than expected in August as warmer weather boosted food and clothing sales, data from the Office for National Statistics showed. Retail sales grew 1 percent on a monthly basis in August, faster than the 0.7 percent rise in July. Sales were forecast to climb by 0.3 percent.

A separate report from the Office for National Statistics said U.K. government borrowing exceeded the official estimate and the debt hit 100 percent of GDP at the end of August.

U.S. Economic Reports

Philadelphia Federal Reserve President Patrick Harker is scheduled to speak on “The Federal Reserve: It’s More Than Just Interest Rates” before a Tulane University Freeman School of Business Lecture event at 2 pm ET.