Pre-Market Brief: Stocks Mostly Lower As Recession Worries Outweigh Cooler Inflation Data

Oleksandr Pylypenko - Barchart - Thu Jan 19, 2023

March S&P 500 futures (ESH23) are trending down -0.41% this morning after three major U.S. benchmark indices ended the regular session lower as weak economic data and hawkish comments from Federal Reserve officials bolstered concerns over the outlook for growth and corporate earnings. Three major U.S. stock indexes were weighed down primarily by losses in the Utilities, Consumer Goods, and Oil & Gas sectors.

Data on Wednesday showed retail sales and producer prices dropped more than expected in December. Also, industrial and manufacturing production fell more than anticipated in December, showing the economy was cooling. However, U.S. stocks erased gains after St. Louis Fed President James Bullard and Cleveland Fed President Loretta Mester emphasized the need to hike rates above 5% and keep them there until 2024. Bullard noted that inflation remains too high, and Fed officials must not “waver” on bringing inflation down to the central bank’s 2% target. At the same time, Philadelphia Federal Reserve President Patrick Harker supported a slower pace of interest rate hikes “going forward” due to signs of cooling inflation.

“Despite the producer prices numbers being okay today, it was just a harsh reminder that we're a long way from a Fed pivot. This market is very hopeful that we’re going to get a soft landing and every time you have hawkish comments from the Fed, it feels you’re not going to get that,” said Dennis Dick, a trader at Triple D Trading.

Meanwhile, U.S. rate futures have priced in a 95.4% chance of a 25 basis point rate increase and a 4.6% chance of a 50 basis point hike at February’s monetary policy meeting.

Market participants are also focused on the earnings season, assessing the strength of corporate America in a rising interest rate environment. Analysts expect year-over-year earnings from S&P 500 companies to drop 2.6% for the quarter, compared with an expected decline of 1.6% at the beginning of the year.

Today, all eyes are focused on the U.S. Building Permits preliminary data in a couple of hours. Economists, on average, forecast that December Building Permits will stand at 1.370M, compared to the previous value of 1.351M.

Also, investors will likely focus on the U.S. Philadelphia Fed Manufacturing Index, which stood at -13.8 in December. Economists foresee the new figure to be -11.0.

U.S. Initial Jobless Claims data will be reported today. Economists, on average, forecast that Initial Jobless Claims will come in at 214K, compared to last week’s figure of 205K.

U.S. Housing Starts data will come in today. Economists expect December’s figure to be 1.359M, compared to the previous number of 1.427M.

U.S. Crude Oil Inventories data will be reported today as well. Economists estimate this figure to be -0.593M, compared to last week’s value of +18.962M.

In addition, investors will be looking toward a batch of speeches from Fed officials Collins, Brainard, and Williams for further clues on the outlook for rates.

In the bond markets, United States 10-Year rates are at 3.361%, down -0.43%.

The Euro Stoxx 50 futures are down -0.91% this morning, tracking overnight losses on Wall Street after weak economic data fueled recession worries. Investors pushed stocks higher recently on the hope that the Federal Reserve and European Central Bank would ease aggressive monetary policy tightening amid cooling inflation. However, European Central Bank board member Klaas Knot, who serves as the governor of the Dutch central bank, on Thursday said the ECB would not stop with one single 50 basis point hike at its next rate-setting meetings.

The European economic data slate is mainly empty on Thursday. However, investors will likely focus on the ECB account of its December policy meeting and ECB President Lagarde’s speech at the World Economic Forum in Davos.

Asian stock markets today closed mixed. China’s Shanghai Composite Index (SHCOMP) closed up +0.49%, and Japan’s Nikkei 225 Stock Index (NIK) closed down -1.44%.

China’s Shanghai Composite today closed higher amid optimism over the country's economic recovery. International Monetary Fund Deputy Director Gita Gopinath said on Wednesday China could see a strong economic recovery from the second quarter onwards. However, fears of a looming global recession limited gains in regional stocks.

At the same time, Japan’s Nikkei 225 Stock Index closed sharply lower on renewed speculation that the Bank of Japan would eventually widen its yield control range this year. Columbia University academic Takatoshi Ito, whom some analysts see as a potential candidate to join the BOJ, said on Thursday that hotter-than-anticipated inflation could push the central bank into widening its benchmark bond yield range by mid-2023. The Nikkei Volatility, which takes into account the implied volatility of Nikkei 225 options, closed down 3.14% to 19.15.

Pre-Market U.S. Stock Movers

CureVac NV (CVAC) climbed more than +12% in pre-market trading after UBS upgraded the stock to buy from neutral.

Alcoa Corp (AA) slid over -6% in pre-market trading after the company delivered mixed Q4 results.

Intellia Therapeutics Inc (NTLA) dropped about -2% in pre-market trading after JMP Securities downgraded the stock to market perform from outperform.

Discover Financial Services (DFS) plunged over -6% in pre-market trading despite reporting better-than-expected Q4 earnings.

Zymeworks Inc (ZYME) gained about +13% in pre-market trading after its shareholder EcoR1 Capital disclosed that it had bought 985K shares of the company at $9.84 per share between January 13th and January 18th.

Vornado Realty Trust (VNO) fell over -3% in pre-market trading after the company declared a quarterly dividend of $0.375 per share, representing a 29.2% decrease from the prior dividend of $0.53.

You can see more pre-market stock movershere

Today’s U.S. Earnings Spotlight: Thursday - January 19th

Procter&Gamble (PG), Netflix (NFLX), Truist Financial Corp (TFC), Atlassian Corp Plc (TEAM), PPG Industries (PPG), Fastenal (FAST), M&T Bank (MTB), Fifth Third (FITB), Northern Trust (NTRS), KeyCorp (KEY), SVB (SIVB), Comerica (CMA), Commerce Bancshares (CBSH), Concentrix (CNXC), Bankinter ADR (BKNIY), Kimberly-Clark de Mexico (KCDMY), Synovus (SNV), TAL Education (TAL), Bank Ozk (OZK), Home BancShares (HOMB), Home BancShares (HOMB), Independent Bank (INDB), BancFirst (BANF), BankUnited (BKU), Banner (BANR), Westamerica Bancorporation (WABC), 1st Source (SRCE), OceanFirst (OCFC), Premier Foods ADR (PRRFY), Banc of California (BANC), Amerant Bancorp A (AMTB), Metropolitan Bank (MCB), Hingham Institution (HIFS), Insteel Industries (IIIN), Cuisine Solutions (CUSI), Capstar Financial (CSTR), American National Bankshares (AMNB), Citizens&Northern (CZNC), Five Point (FPH), Codorus Valley (CVLY), Mainstreet Bank (MNSB), Bassett (BSET).

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On the date of publication, Oleksandr Pylypenko did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.