The major U.S. index futures are currently pointing to a higher open on Wednesday, with stocks likely to regain ground following the sell-off seen in the previous session.
Traders may see the sharp pullback during Tuesday’s session as a buying opportunity amid ongoing optimism about the outlook for the markets.
While yesterday’s inflation data further pushed back interest rate cut expectations, signs of continued strength in the economy is still expected to benefit the markets in the longer term.
Overall trading activity may be somewhat subdued, however, with a lack of major U.S. economic data likely to keep some traders on the sidelines.
Traders may be reluctant to make significant bets ahead of the release of an avalanche of data before the start of trading on Thursday.
The slew of data due to be released tomorrow includes reports on weekly jobless claims, retail sales, industrial production and import and export prices.
Stocks moved sharply lower during trading on Tuesday, with the major averages all showing significant moves to the downside after ending Monday’s trading narrowly mixed. The Dow pulled back well off yesterday’s record closing highs.
The major averages climbed off their worst levels going into the close but still posted steep losses on the day. The Dow tumbled 524.63 points or 1.4 percent to 38,272.75, the Nasdaq plunged 286.95 points or 1.8 percent to 15,655.60 and the S&P 500 slumped 68.67 points or 1.4 percent to 4,953.17.
The sell-off on Wall Street came following the release of a highly anticipated Labor Department report showing consumer prices in the U.S. increased by slightly more than expected in the month of January.
The Labor Department said its consumer price index rose by 0.3 percent in January after inching up by 0.2 percent in December. Economists had expected consumer prices to edge up by 0.2 percent.
While the report also showed the annual rate of consumer price growth slowed to 3.1 percent in January from 3.4 percent in December, economists had expected the pace of growth to slow to 2.9 percent.
Excluding food and energy prices, core consumer prices climbed by 0.4 percent in January after rising by 0.3 percent in December. Core prices were expected to increase by 0.3 percent.
The annual rate of core consumer price in January came in unchanged from the previous month at 3.9 percent. The pace of core price growth was expected to decelerate to 3.7 percent.
With Federal Reserve officials repeatedly saying they need more “confidence” inflation is slowing before lowering interest rates, the data has further reduced optimism about a near-term rate cut.
CME Group’s FedWatch Tool is currently indicating just an 8.5 percent chance of a quarter point rate cut in March, while the chances of a quarter point rate cut in early May have fallen to 33.5 percent.
Quincy Krosby, Chief Global Strategist for LPL Financial, called the report a “disappointment for those who expected inflation to edge lower allowing the Fed to begin easing rates sooner rather than later.”
“This report underscores the Fed’s messaging that they’ll need more information specifically inflation-related data before a policy transition,” Krosby said. “The ‘last mile’ – as expected – is proving to be stickier and more stubborn inhibiting even the most dovish wing of the FOMC.”
Treasuries yields surged in response to the data, with the yield on the benchmark ten-year note reaching its highest levels in two months.
Gold stocks saw substantial weakness on the day, dragging the NYSE Arca Gold Bugs Index down by 6.5 percent to a four-month closing low.
The sell-off by gold stocks came amid a steep drop by the price of the precious metal, with gold for April delivery tumbling $25.80 to $2,007.20 an ounce.
Significant weakness was also visible among networking stocks, which pulled back sharply after surging in the previous session. After jumping by 2.5 percent during Monday’s trading, the NYSE Arca Networking Index plunged by 4.4 percent.
Interest rate-sensitive housing stocks also saw considerable weakness, resulting in a 3.2 percent nosedive by the Philadelphia Housing Sector Index.
Tobacco, steel, banking and telecom stocks also moved notably lower amid broad based weakness on Wall Street.