Wall Street Poised For Strong Start As Inflation Data Looms: Strategist Says Brace For Volatile Fall As Soft Landing Not Guaranteed Outcome

Benzinga · 08/30 10:45

After Thursday’s mixed close, stocks appear to be headed for a positive start, although Monday’s Labor Day holiday will likely keep volume anemic. The index futures were solidly higher early Friday and sustenance of the sentiment hinges largely on an inflation readout due ahead of the market open. The futures market has priced in a 100% probability of a rate cut and the only uncertainty there is the magnitude of the reduction. If Friday’s inflation does nothing to force a reassessment, the market could launch into a strong rally. A rebound by tech stocks could also provide a thrust to the market.

Futures Performance (+/-)
Nasdaq 100 +0.68%
S&P 500 +0.39%
Dow +0.17%
R2K +0.34%

In premarket trading on Friday, the SPDR S&P 500 ETF Trust (NYSE:SPY) rose 0.46% to $560.91, and the Invesco QQQ ETF (NASDAQ:QQQ) jumped 0.72% to $474.03, according to Benzinga Pro data.

Cues From Last Session

Wall Street showed resilience on Thursday as the market weathered the negative reaction to artificial intelligence stalwart Nvidia Corp.’s (NASDAQ:NVDA) earnings. Nvidia fell 6.38% despite the company reporting a second-quarter beat and issuing above-consensus third-quarter guidance.

An upward revision to second-quarter GDP growth gave the market an early thrust, with a slew of other positive earnings adding further momentum. Commenting on the GDP report, Comerica Chief Economist Bill Adams said, “The GDP revisions show the U.S. economy was in good shape in mid-2024.”

“Solid growth of consumer spending propelled the economy forward in the second quarter, and the increase of consumer confidence in July suggests it will propel growth in the second half of the year as well,” he added.

The tech-heavy Nasdaq Composite and the S&P 500 Index hovered well above the flat line for much of the session before pulling back sharply in late trading. The former ended modestly lower, and the latter was little changed with a slight negative bias, at the close.

The Dow Jones Industrial Average started higher but dipped below the unchanged line briefly in early trading. After recovering from the low, the index was in the green for the remainder of the session, hitting a new intraday high and also closing at a fresh record.

Among the sectors, energy, industrials, financials, material, and utility stocks gained ground, while IT stocks were the worst hit.

Index Performance (+/) Value
Nasdaq Composite -0.23% 17,516.43
S&P 500 Index -0.00% 5,591.96
Dow Industrials +0.59% 41,335.05
Russell 2000 +0.66% 2,202.98

Insights From Analysts

As investors prepare for the first rate cut in over four years, a technical analyst said it may not be smooth sailing for the market in the near term. LPL Financial’s Chief Technical Strategist Adam Turnquist said Friday’s inflation report and next week's jobs data could dictate the size of the September cut. Another weak employment report would likely push probabilities toward a 0.50% reduction, he said.

“We believe a soft landing is still viable but not guaranteed, setting stocks up for a potential volatile fall, likely exacerbated by the November election,” Turnquist said. He noted that stocks have historically traded flat to negative in the first few months after a rate-cutting cycle begins but tend to move higher over the following 12 months, with the drawdowns during these 12 months tending to be more severe.   

Upcoming Economic Data

  • The Bureau of Economic Analysis will release the July personal income and spending report at 8:30 a.m. EDT. The personal consumption expenditure reading of the report is expected to show a 2.5% year-over-year increase, unchanged from June. The annual rate of the core personal consumption expenditure – the Fed’s key inflation gauge, is expected to edge up from 2.6% to 2.7%. The headline numbers of the report, namely personal income and spending, may have seen month-over-month increases of 0.2% and 0.5%, respectively, compared to the June rates of 0.2% and 0.3%.
  • The ISM-Chicago will release the results of its regional manufacturing activity survey at 9:45 a.m. EDT, with economists, on average, expecting the Chicago business barometer to come in at 45.6 in August, almost unchanged from July’s 45.3.
  • The University of Michigan is due to announce the results its final consumer sentiment index for August at 10 a.m. EDT. Economists, on average, expect the index to upwardly revised from the mid-month reading of 67.8 to 68, marking an increase from July’s 66.4. Traders may also focus on the survey’s one- and five-year inflation expectations readings.

See Also: How To Trade Futures

Stocks In Focus

  • Dell Technologies Inc. (NYSE:DELL) climbed over 6% in premarket trading following the computer and peripheral maker’s earnings release.
  • Other stocks moving on earnings include Autodesk, Inc. (NASDAQ:ADSK) (up over 3%), Lululemon Athletica Inc. (NASDAQ:LULU) (up nearly 4.5%), Marvell Technology, Inc. (NASDAQ:MRVL) (up nearly 9%), MongoDB, Inc. (NASDAQ:MDB) (up over 15%). Elastic N.V. (NYSE:ESTC) (down over 27%) and Ulta Beauty, Inc. (NASDAQ:ULTA) (down nearly 6.50%).
  • JinkoSolar Holding Co., Ltd. (NASDAQ:JKS) is scheduled to announce its quarterly results before the market opens.

Commodities, Bonds And Global Equity Markets

Crude oil and gold futures were modestly lower and Bitcoin (CRYPTO: BTC) traded nearly flat under the $60K level. The yield on the 10-year Treasury note rose 1.1 basis points to 3.856%.

Asian stocks rallied across the board on Friday, encouraged by Wall Street’s resilience performance, and the European markets held up in early trading.

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