Wall Street is expected to open higher on Tuesday, rebounding from Monday’s sharp sell-off. The optimism stems from a pullback in the 10-year Treasury note yield and reassuring comments from Federal Reserve Governor Adriana Kugler. Speaking at a European Central Bank event, Kugler hinted at further interest rate cuts if inflation continues to cool, adding that the Fed’s focus has shifted from inflation to maximum employment.
While this dovish sentiment is a positive signal for markets, traders remain cautious. China’s reluctance to provide details on additional stimulus has dampened sentiment in Asia, weighing on oil prices. Additionally, PepsiCo’s disappointing third-quarter earnings, which fell short of revenue expectations, could intensify concerns surrounding the upcoming earnings season.
Traders will be keeping a close eye on bond yields and speeches by Federal Reserve officials, including Atlanta Fed President Raphael Bostic, Boston Fed President Susan Collins, and Federal Reserve Vice Chair Philip Jefferson.
Monday’s sell-off was triggered by a combination of factors, including rising bond yields, the approaching earnings season, negative news in the tech sector, and Fed speeches. The major indices opened lower and continued to decline in the afternoon, with insurance stocks also experiencing downward pressure due to Hurricane Milton, the latest addition to the 2024 hurricane season.
Amidst the market turbulence, some analysts remain optimistic about the long-term outlook for stocks. Morgan Stanley’s Chief U.S. Market Strategist Mike Wilson, while acknowledging the strong September jobs report, suggests taking profits on large-cap stocks and moving to a neutral stance on large versus small caps. Wilson believes the recent payroll data makes the risk-reward less appealing for large-cap stocks, at least tactically. However, he remains positive on small caps, citing improving small business sentiment and a rising ISM PMI.
Meanwhile, Wisdom Tree Senior Economist and Wharton professor Jeremy Siegel views the overall backdrop for stocks as “quite positive.” He sees the increase in bond yields as a reflection of investor confidence in a resilient economy, making a recession less likely. Siegel expects the S&P 500 to reach 6,000 by the end of 2024, although he anticipates more subdued returns in 2025 compared to 2023 and 2024.
While the Middle East tensions have pushed oil prices higher, economists do not expect an excessive rise due to the United States’ increased energy self-sufficiency. Siegel concludes that the Fed is on track to cut rates five to six times by next summer, while the economy remains strong.
The economic data for the week includes the trade deficit report for August, due out at 8:30 a.m. EDT, and the Atlanta Fed GDPNow report for the third quarter, scheduled for 10:30 p.m. EDT.
In pre-market trading, the SPDR S&P 500 ETF Trust (SPY) rose 0.30% to $569.53, and the Invesco QQQ ETF (QQQ) climbed 0.31% to $483.59.
The Asian markets ended the day on a mixed note, reacting negatively to Wall Street’s overnight pullback. Hong Kong and Japanese markets led the decline, while the Chinese market, which reopened after the National Day holiday, continued its upward trend. The Shanghai Composite Index closed up 4.59%, but below its intraday high, after the chairman of China’s economic planner, Zheng Shanjie, failed to provide further clarity on fresh fiscal stimulus. Hong Kong’s Hang Seng Index tumbled 9.41%.
European markets also opened lower, with the U.K.’s FTSE 100 Index underperforming due to a rise in the yield on 10-year U.K. government gilts to 4.2%, its highest level since the general election in July.
