Traders May Cash In On Recent Strength Ahead Of Fed Decision

The major U.S. index futures are currently pointing to a modestly lower open on Wednesday, with stocks likely to give back ground after moving mostly higher over the two previous sessions.

Traders may look to cash in on recent strength in the markets ahead of the Federal Reserve’s monetary policy decision this afternoon.

Since the Fed is widely expected to raise interest rates by another 25 basis points, traders will be focused on the accompanying statement for clues about the outlook for interest rates.

Traders are optimistic the rate hike will be the last following recent encouraging inflation data, but the Fed may not offer as much confirmation as they hope.

“They will probably signal that they want to see the impact of the current tightening cycle and that they will probably skip raising rates in September,” Edward Moya, senior market analyst at OANDA, said of the Fed. “They will likely be clear in suggesting that more tightening could very well happen.”

A steep drop by shares of Microsoft (MSFT) may also weigh on the markets, with the software giant tumbling by 3.6 percent in pre-market trading

Microsoft has come under pressure after reporting better than expected fiscal fourth quarter results but providing disappointing revenue guidance for the current quarter.

Meanwhile, shares of Alphabet (GOOGL) are moving sharply higher in pre-market trading after the Google parent reported second quarter earnings that exceeded analyst estimates.

Coca-Cola (KO), Boeing (BA) and AT&T (T) are also likely to see initial strength after reporting better than expected quarterly results.

Stocks fluctuated over the course of the trading day on Tuesday but largely maintained a positive bias throughout the session. While the tech-heavy Nasdaq outperformed its counterparts, the Dow managed to close higher for the twelfth straight session.

The Nasdaq climbed 85.69 points or 0.6 percent to 14,144.56 and the S&P 500 rose 12.82 points or 0.3 percent to 4,567.46, reaching its best closing level in over a year. The Dow pulled back off its best levels going into the close but still inched up 26.83 points or 0.1 percent to 35,438.07.

The higher close on Wall Street partly reflected a positive reaction to the latest batch of earnings news from big-name companies.

The uptick by the Dow came amid a strong gain by shares of 3M (MMM), which spiked by 5.3 percent after the industrial conglomerate reported better than expected second quarter results and raised its full-year profit forecast.

Chemical giant Dow Inc. (DOW) also jumped by 1.8 percent after reporting second quarter results that exceeded expectations on both the top and bottom lines.

Shares of General Electric (GE) also soared by 6.3 percent after the industrial giant reported better than expected second quarter earnings and boosted its full-year profit guidance.

“Wall Street is about one-fourth done with earnings season and so far most of the important corporate updates have delivered better-than-expected results,” said Edward Moya, senior market analyst at OANDA.

He added, “In the S&P 500, 76% of the companies that reported delivered EPS beats, while 62% had better-than-expected revenue results.”

In U.S. economic news, the Conference Board released a report showing U.S. consumer confidence improved by much more than expected in the month of July.

The Conference Board said its consumer confidence index jumped to 117.0 in July from an upwardly revised 110.1 in June. Economists had expected the index to climb to 111.8 from the 109.7 originally reported for the previous month.

With the much bigger than expected surge, the consumer confidence index reached its highest level since July 2021.

Steel stocks extended the rally seen on Monday amid optimism about additional Chinese stimulus, with the NYSE Arca Steel Index spiking by 3.3 percent to a new four-month closing high.

Computer hardware, semiconductor and software stocks also saw considerable strength, contributing to the advance by the tech-heavy Nasdaq.

Chemical stocks also moved significantly higher following the upbeat earnings news from Dow, driving the S&P Chemical Sector Index up by 1.5 percent.

Gold and housing stocks also saw notable strength, while airline stocks have moved sharply lower, resulting in a 3.2 percent nosedive by the NYSE Arca Airline Index.

Shares of Alaska Air (ALK) plummeted by 9.7 percent even though the airline reported second quarter results that beat analyst estimates on both the top and bottom lines.

Commodity, Currency Markets

Crude oil futures are sliding $0.76 to $78.87 a barrel after climbing $0.89 to $79.63 a barrel on Tuesday. Meanwhile, an ounce of gold is trading at $1,973.90, up $10.20 compared to the previous session’s close of $1,963.70. On Tuesday, gold inched up $1.50.

On the currency front, the U.S. dollar is trading at 140.28 yen compared to the 140.90 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is trading at $1.1063 compared to yesterday’s $1.1055.

Asia

Asian stocks ended mostly lower on Wednesday as investors braced for another rate hike from the U.S. Federal Reserve later in the day.

Odds are that Fed Chair Jerome Powell will signal additional rate hikes are not off the table, but the central bank will take a more gradual approach to rate increases based on incoming data. Upcoming ECB and BOJ rate decisions also remained on investors’ radar.

The U.S. dollar hovered below a two-week high in Asian trading and gold traded higher, while oil prices slipped after having reached three-month highs in the previous session on signs of tight supply and Chinese stimulus optimism.

Chinese shares fell slightly as investors awaited details of an economic stimulus package to support the country’s struggling economy.

The benchmark Shanghai Composite Index settled 0.3 percent lower at 3,223.03, while Hong Kong’s Hang Seng Index dropped 0.4 percent to 19,365.14.

Japanese shares closed on a tepid note ahead of the Bank of Japan’s policy meeting on Friday. The Nikkei 225 Index finished marginally lower at 32,668.34, with auto and tyre makers pacing decliners. The broader Topix Index ended down 0.1 percent at 2,283.09.

Toyota Motor, Honda Motor, Mazda Motor, Isuzu Motors, Subaru and Yokohama Rubber fell 1-2 percent as the dollar declined to 140.88 yen from Tuesday’s 141.04 yen.

In economic news, producer prices in Japan were up 1.2 percent year-over-year in June, the Bank of Japan said today, missing expectations for an increase of 1.4 percent.

Seoul stocks tumbled to snap a three-day winning streak amid heavy sell-off by foreign investors. The Kospi slumped 1.7 percent to 2,592.36, dragged down by battery makers and steel companies. LG Energy Solution gave up 2.4 percent and POSCO Holdings lost 4.3 percent.

SK Hynix eased 0.4 percent after posting a narrower second-quarter loss on sagging demand.

Australian markets rose notably to close at a five-month high after data showed inflation slowed more than expected in the second quarter, suggesting an RBA interest rate increase next week is unlikely.

The benchmark S&P/ASX 200 Index climbed 0.9 percent to 7,402 and the broader All Ordinaries index closed 0.8 percent higher at 7,617.80, with banks and miners leading the way higher.

Europe

European stocks have come under pressure during trading on Wednesday as investors brace for another interest rate hike by the Federal Reserve later in the day.

Odds are that Fed Chair Jerome Powell will signal additional rate hikes are not off the table, but the central bank will take a more gradual approach to rate increases based on incoming data. Upcoming ECB and BOJ rate decisions also remained on investors’ radar.

While the French CAC 40 Index has plunged by 1.9 percent, the German DAX Index is down by 1.0 percent and the U.K.’s FTSE 100 Index is down by 0.6 percent.

Mining giant Rio Tinto has moved notably lower in London after reporting its lowest first-half year profits since the pandemic.

Lender Lloyds Banking Group has also shown a significant move to the upside after its first-half profit missed expectations.

NatWest has also slumped. CEO Alison Rose quit today after admitting a “serious error of judgment” in speaking to a reporter about the banking affairs of arch-Brexiteer Nigel Farage.

LVMH has also tumbled after the French luxury goods giant reported a surprise drop in U.S. sales amid economic uncertainty.

Danone has also fallen. The maker of Activia yoghurt, Evian water and Aptamil infant milk announced that it would “deconsolidate” its Russia business in July, bringing the total impairments related to the country to almost 700 million euros.

Telecom major Orange has plummeted after consolidated net income declined by 378 million euros to 1.09 billion euros in the first half of 2023 on an historical basis.

Aircraft engine maker MTU Aero Engines has also slumped after a warning that the Geared Turbofan inspection program will cause headwinds for its free cash flow.

Lender Deutsche Bank has also shown a notable move to the downside after reporting a decline in second-quarter earnings.

Meanwhile, Amsterdam-based Just Eat Takeaway.com has soared after posting a narrower loss in the first half of the year.

Aircraft-engine manufacturer Rolls-Royce has also spiked after unexpectedly raising its full-year operating profit forecast by around 45 percent.

Sportswear retailer PUMA has also jumped after reporting 11 percent growth in second-quarter sales.

U.S. Economic Reports

The Commerce Department is scheduled to release its report on new home sales in the month of June at 10 am ET. New home sales are expected to pull back to an annual rate of 725,000 in June after surging to a rate of 763,000 in May.

At 10:30 am ET, the Energy Information Administration is due to release its report on oil inventories in the week ended July 21st.

Crude oil inventories are expected to decrease by 2.0 million barrels after slipping by 0.7 million barrels in the previous week.

The Federal Reserve is scheduled to announce its monetary policy decision at 2 pm ET, followed by Fed Chair Jerome Powell’s post-meeting press conference at 2:30 pm ET.

Stocks In Focus

Shares of Snap (SNAP) are moving sharply lower in pre-market trading after the Snapchat parent reported better than expected second quarter results but providing disappointing guidance for the current quarter.

Chipmaker Texas Instruments (TXN) is also seeing pre-market weakness after reporting second quarter results that beat expectations but forecasting weaker than expected third quarter results.

On the other hand, shares of PacWest Bancorp (PACW) are soaring in pre-market trading after the regional bank agreed to a merger with Banc of California (BANC).

Under the terms of the merger agreement, PacWest stockholders will receive 0.6569 of a share of Banc of California common stock for each share of PacWest common stock.

Telehealth company Teladoc (TDOC) is also likely to see initial strength after reporting a narrower than expected second quarter loss on revenues that exceeded analyst estimates.