The major U.S. index futures are currently pointing to a roughly flat open on Tuesday, with stocks likely to show a lack of direction after recovering from early weakness but still closing mostly lower on Monday.
Traders may be reluctant to make significant moves amid uncertainty about the near-term outlook for the markets following recent volatility.
Stocks fell sharply following the Federal Reserve’s monetary policy announcement last Wednesday but rebounded to record highs over the following two sessions only to pullback sharply once again in early trading on Monday.
While the major averages climbed well off yesterday’s early lows, fading optimism the Fed will lower interest rates in March continues to hang over the markets.
A lack of major U.S. economic data may also keep some traders on the sidelines, although remarks by several Fed officials may attract attention later in the day.
Following the rally seen to close out the previous week, stocks showed a significant pullback during morning trading on Monday. The major averages staged a recovery attempt over the course of the afternoon but still finished the day in negative territory.
The tech-heavy Nasdaq dipped 31.28 points or 0.2 percent to 15,597.68 after falling as much as 1.0 percent in early trading. The S&P 500 fell 15.80 points or 0.3 percent to 4,942.81, while the narrower Dow remained more firmly in the red, closing down 274.30 points or 0.7 percent at 38,380.12.
The early weakness on Wall Street came as some traders looked to cash in on the rally seen to close out the previous week amid fading optimism about the likelihood the Federal Reserve will cut interest rates in March.
Fed Chair Jerome Powell reiterated the central bank is unlikely to cut interest rates next month during an interview with “60 Minutes” on Sunday.
Powell suggested the strength of the U.S. economy even amidst elevated rates will allow the Fed to proceed carefully.
“With the economy strong like that, we feel like we can approach the question of when to begin to reduce interest rates carefully,” Powell said.
“We want to see more evidence that inflation is moving sustainably down to 2 percent,” He added. “Our confidence is rising. We just want some more confidence before we take that very important step of beginning to cut interest rates.”
Following last week’s Fed meeting and Powell’s subsequent comments, the chances of a March rate cut have fallen to just a 16.5 percent, according to CME Group’s FedWatch Tool.
Stocks fell to their lows of the session as the Institute for Supply Management released a report showing U.S. service sector growth accelerated by more than expected in the month of January.
The ISM said its services PMI climbed to 53.4 in January from a downwardly revised 50.5 in December, with a reading above 50 indicating growth in the sector. Economists had expected the index to rise to 52.0 from the 50.6 originally reported for the previous month.
The report also said the prices index surged to 64.0 in January from 56.7 in December, indicating a substantial acceleration in the pace of price growth.
“The latest data releases, including both last Friday’s solid jobs report and today’s stronger-than-expected ISM Services PMI, will make the Fed more comfortable waiting a bit longer to start cutting short-term interest rates,” said Bill Adams, Chief Economist for Comerica Bank.
Selling pressure waned over the course of the session, however, as traders once again saw the pullback as a buying opportunity about general optimism about the outlook for the markets.
Despite the recovery attempt by the broader markets, airline stocks finished the day sharply lower, dragging the NYSE Arca Gold Bugs Index down by 2.9 percent.
Substantial weakness also remained visible among gold stocks, as reflected by the 2.1 percent slump by the NYSE Arca Gold Bugs Index. The weakness in the gold sector came amid a continued decrease by the price of the precious metal.
Commercial real estate, natural gas and utilities stocks also saw significant weakness on the day, while pharmaceutical, computer hardware and semiconductor stocks showed strong moves to the upside.