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Stock Futures Struggle For Direction

Stock Futures Struggle For Direction

Stock Market Today

Futures in the United States are down, while those in Europe are up after U.S. manufacturing data came in lower than expectations. Nonetheless, the Dow Jones Industrial Average was able to achieve another record high by pounding its way above the 36,000 level. The S&P 500 index also gained ground, owing to gains in consumer discretionary and energy stocks. Over the next few days, investors will be watching the FOMC meeting, the employment numbers, and the OPEC meeting, which can potentially cause volatility in stock markets.

In yesterday’s session, the Dow Jones Industrial Average surged 0.26%, while the S&P 500 index jumped 0.18%. The Nasdaq, the tech-savvy index, gained 0.63%.

Stock Market

Over the last few weeks, if not days, stock markets have surged due to better-than-expected corporate earnings. Nearly 80% of the firms listed in the S&P 500 have outperformed projections. This has rallied the bulls to drag the stock market indices past their previous all-time highs. However, despite strong earnings, investors should consider various risks that are still present. Economies around the world are still susceptible to new variants of Covid-19, supply chain bottlenecks, rising consumer and fuel prices, and a looming power crunch. All these factors are likely to hamper growth in coming months along with uncertainty related to the Fed’s tapering.

Investors should note that the current upward trend is expected to continue until the Thanksgiving holiday, which is later this month. However, after that, volatility in stock markets is highly likely to rise because earnings are expected to take a hit in 2022, as the impact of inflationary pressures and supply chain constraints start to become clearer.

Stock traders should remember that the Federal Reserve is scheduled to meet on Wednesday and announce the much-awaited details of how and when it plans to begin winding down its quantitative easing programme. The most important factor to watch is what the central bank says about inflation. It is expected that although consumer prices are surging, the Fed is not likely to specify a timeline for when interest rates are likely to be hiked. Rather, Fed officials will likely try to keep the communication as fluid as possible, leaving it with some flexibility with regards to the actual timeline. This was the strategy used when the Fed started tapering between 2013 and 2014 as well.

Another important factor in economic recovery is the growth of the U.S. labour market. The labour market has lagged expectations and full recovery won’t likely happen until the first few months of 2022. A strong recovery will only happen if worries regarding the spread of coronavirus cases significantly decline along with widespread vaccinations for children. Furthermore, unemployment benefits given to Americans are also discouraging them from re-joining the labour force, and only when their savings drop will we see a full labour market recovery. Investors should keep in mind that a quick recovery in the labour market along with rising consumer prices is likely to push the Fed to implement the first interest hike as early as next year.

Economic Data

Due to rising input costs and delays in raw material deliveries, manufacturing activity in the United States dropped to its lowest in 16 months. According to the Institute for Supply Management (ISM), the manufacturing index dipped from 61.1 in September to 60.8 in October. The expected reading for last month was 60.5. The stated index is important because the manufacturing sector constitutes 12% of the American economy.

Oil

Oil prices jumped on Monday as demand for crude oil is expected to rise as the winter months approach and shortages of fuel commodities continue to rise. On the other hand, supply is expected to remain the same, as major oil producing countries are expected to continue with their current production plans. Yesterday, Brent crude oil advanced 1.2% and settled at $84.71 a barrel. Tight supply forced Beijing to tap into its diesel and gasoline reserves to alleviate rising price pressures, but the impact was minimal. Similarly, in an attempt to reduce the gap between oil demand and supply, energy companies in the U.S. have added natural gas and oil rigs for the last 15 consecutive months.

Gold

Gold prices saw some retracement after the dollar index depreciated against a basket of foreign currencies. It recently declined from above 94.0 to about 93.94. The precious metal is expected to remain steady prior to the FOMC meeting, to be held tomorrow. A more hawkish approach by the central bank could be detrimental to the yellow metal as a rise in interest rates sooner than anticipated could increase the opportunity cost of holding gold and could likely push investors to decrease their exposure to the precious metal.

Asian Pacific Markets

Asian Pacific markets are broadly on a decline as investors await Australia’s central bank meeting scheduled to be held today. As of 11.35 p.m. EST, the Nikkei dropped 0.22%, and the Shanghai index slumped 0.74%. The Hang Seng index, in Hong Kong, jumped 0.51%. The ASX 200 index fell 0.66%, and the Seoul Kospi rose 1.51%.