US stock markets are poised for a potential rebound, showing signs of recovery after experiencing a dip on Tuesday. The major averages are slightly higher early Wednesday, but traders remain cautious and are closely watching for cues ahead of Federal Reserve Chair Jerome Powell’s highly anticipated speech at Jackson Hole on Friday. This speech is expected to shed light on the Fed’s future monetary policy decisions and could significantly impact the direction of the market.
The CBOE Volatility Index (VIX), often referred to as the “fear gauge,” climbed over 8% and has surpassed the 16 level, indicating a slight increase in investor anxiety. This nervousness stems from uncertainty surrounding the future economic outlook and the potential for further interest rate hikes by the Fed.
Traders are also closely monitoring the Fed minutes, scheduled to be released later today, which could offer insights into the central bank’s thinking on the current economic landscape. Additionally, a number of companies are scheduled to release their quarterly earnings reports today, which could further influence trading direction.
In premarket trading on Wednesday, the SPDR S&P 500 ETF Trust (SPY) edged up 0.03% to $558.85, while the Invesco QQQ ETF (QQQ) gained 0.02%.
Despite the overall upward trend, Tuesday saw a reversal in the market’s momentum. This shift was attributed to a combination of factors, including disappointing earnings from home-improvement retailer Lowe’s Companies, Inc. (LOW), which served as a downside trigger.
However, analysts remain optimistic about the market’s long-term prospects. Fund Strat Head of Research Tom Lee believes that a “soft landing” scenario is most likely, leading to the Fed embarking on an easing cycle and eventually lowering interest rates. Lee predicts a significant rally in small-cap stocks, projecting a 40% increase in their valuations. He attributes this potential growth to increasing M&A activity, which he views as a sign of CEO confidence.
Comerica Chief Investment Officer John Lynch echoes a similar sentiment, stating that he sees downside support for the market. He emphasizes the favorable US real GDP growth, declining interest rates, and strong corporate profits as factors that will help maintain market sentiment.
Lynch also points out the recent rapid decline in the VIX, suggesting that earlier market fears might have been exaggerated. He believes that investor confidence has returned to the equity markets.
In addition to the Fed minutes and earnings reports, the Energy Information Administration will release its weekly petroleum status report at 10:30 a.m. EDT.
Global markets are also reflecting the uncertainty, with most major Asian markets retreating, mirroring the negative performance of Wall Street overnight. Meanwhile, European stocks are firmer in early trading on Wednesday.
The global economic outlook remains fluid, with traders navigating a challenging environment characterized by inflation, geopolitical tensions, and the ongoing impact of the pandemic. The upcoming Fed speech at Jackson Hole and the release of key economic data will be crucial in determining the market’s direction in the coming weeks.
