Nasdaq Index, Dow Jones, S&P 500 News: Cautious Trade as Treasury Yields Fluctuate, Housing Data Looms

Key Points

• Treasury Yield Rise Influences Market Sentiment
• Housing and Retail Data to Guide Investor Decisions
• Short-Term Market Forecast: Leaning Towards Bearish

Market Outlook Amid Rising Treasury Yields

U.S. stock futures showed limited change early Thursday, indicating a cautious market attempting to stabilize after consecutive losses. The previous session saw major averages decline, driven partly by a rise in Treasury yields. In addition to yields, investor sentiment could be guided by two key reports on U.S. housing and comments from a high-ranking Fed official.

At 11:33 GMT, E-mini Dow futures are trading 37511.00, up 53.00 or +0.14%. E-mini S&P 500 Index futures are at 4784.50, up 13.25 or +0.28% and E-mini Nasdaq-100 index futures are trading 16964.75, up 95.00 or +0.56%.

Overnight Activity:  Treasury Yields and Discover’s Financials

The 10-year Treasury yield briefly crossed 4.1%, reflecting investor attention on robust December retail sales and recent Federal Reserve comments.

Meanwhile, Discover Financial Services experienced a premarket drop of 11% due to an increase in its net charge-off rate and reported fourth-quarter revenue of $4.20 billion, slightly above expectations.

Economic Reports and Fed’s Stance

December’s retail sales exceeded forecasts, rising by 0.6%, indicating strong consumer demand during the holiday season. However, this robust performance raises concerns about the Federal Reserve’s potential rate cuts. Investors are currently anticipating a 56% chance of a quarter percentage point rate reduction in March. Additionally, market participants await data on weekly jobless claims, housing starts, and building permits, along with comments from Atlanta Fed President Raphael Bostic.

Housing Market Indicators

Focus is on the housing market, with December housing starts expected to decline by 8.1%, contrasting with the previous month’s 14.8% increase. Building permits are predicted to show a modest rise to 1.476 million units. These figures will provide insights into the housing sector’s performance amidst fluctuating mortgage rates. The Fed would like to see prices cool off to make housing more affordable, but it can’t do that by lowering rates too quickly. This poses a problem for those expecting an early rate cut.

Earnings Report Highlights

Key earnings reports are on the horizon from various sectors, including banking, construction, and transportation. These reports may offer additional clues about the market’s direction in the face of potential interest rate changes.

Short-Term Forecast: Cautiously Bearish

Given the recent rise in Treasury yields and the mixed economic signals, the short-term outlook appears cautiously bearish. The 10-year Treasury yield’s reaction to the strength of the housing and retail sectors will be critical in shaping investor sentiment.

Investors should also take a look at the FedWatch Tool, the closer it gets to 50%, the more likely a Fed rate cut in March will be a toss-up. This could create more uncertainty and weaken demand for higher-yields stocks.

Technical Analysis

The E-mini S&P 500 Index currently exhibits a mixed sentiment. The current daily price of 4791.00 is just below the minor resistance and pivot level of 4808.25, indicating potential resistance challenges. However, it has shown an uptick from the previous close of 4771.25, suggesting some buying interest.

The index is trading above both the 200-day moving average (4507.01) and the 50-day moving average (4681.50), generally a bullish signal. However, the proximity to the 50-day moving average, coupled with the current price’s closeness to the minor resistance, presents a cautious scenario.

Overall, the market sentiment appears cautiously optimistic, with a close watch on the minor resistance level for further cues. The resistance at 4808.25 is essentially the key pivot today. A sustained move under this level will be a sign of increased selling pressure with the 50-day moving average at 4681.50 the best downside target.