Dow Jones, S&P 500 and Nasdaq futures are currently pointing to a lower open on Monday, with stocks likely to give back ground following the substantial rally seen during the previous session.
Profit taking may contribute to initial weakness on Wall Street, as traders look to cash in on the strong gains posted last Friday, which lifted the Dow to a new record closing high.
The rally seen during last Friday’s session came as remarks from Federal Reserve Chair Jerome Powell seemed to indicate the central bank is likely to lower interest rates next month.
Overall trading activity may be somewhat subdued, however, as traders look ahead to several key events later this week.
Traders are likely to keep a close eye on earnings news from Nvidia (NASDAQ:NVDA), with the AI darling and market leader due to report its second quarter results after the close of trading on Wednesday.
The latest U.S. economic data is also likely to attract attention, as the Commerce Department is due to release a report on Friday that includes the Fed’s preferred readings on consumer price inflation.
Reaction to reports on durable goods orders, consumer confidence and second quarter GDP may also impact trading in the coming days.
After trending lower over the past several sessions, stocks showed a substantial move back to the upside during trading on Friday. The major averages all moved sharply higher on the day, with the Dow reaching a new record closing high.
The major averages ended the day well off their best levels but still posted strong gains. The Dow shot up 846.24 points or 1.9 percent to 45,631.74, the Nasdaq surged 396.22 points or 1.9 percent to 21,496.53 and the S&P 500 jumped 96.74 points or 1.5 percent to 6,466.91.
For the week, the major averages turned in a mixed performance. While the Nasdaq slid by 0.6 percent, the S&P 500 rose by 0.3 percent and the Dow leapt by 1.5 percent.
The rally on Wall Street came in reaction to Powell’s highly-anticipated speech before the Jackson Hole Economic Symposium.
While Powell touched only briefly on the outlook for monetary policy, his remarks have increased investor confidence that the Fed will lower interest rates next month.
Powell noted the labor market remains near maximum employment and inflation has come down a great deal from its post-pandemic high but cautioned “the balance of risks appears to be shifting.”
He noted interest rates are a full percentage point lower than a year ago and said the “stability of the unemployment rate and other labor market measures allows us to proceed carefully as we consider changes to our policy stance.”
“Nonetheless, with policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance,” Powell added.
The Fed Chief reiterated that monetary policy is not on a “preset course” and stressed that future interest rate decisions would be “based solely on [officials’] assessment of the data and its implications for the economic outlook and the balance of risks.”
Following Powell’s remarks, CME Group’s FedWatch Tool is currently indicating an 83.3 percent chance the Fed will lower rates by a quarter point next month, up from 75.0 percent on Thursday.
“Jerome Powell’s comments today were more dovish, than many, including myself expected,” said Larry Tentarelli, Chief Technical Strategist for Blue Chip Daily Trend Report.
He added, “Our view is to expect a September rate cut and sectors that should benefit the most include home construction, small caps and banks.”
Airline stocks turned in some of the market’s best performances on the day, with the NYSE Arca Airline Index soaring by 5.7 percent to its best intraday level in nearly six months.
Substantial strength was also visible among oil service stocks, as reflected by the 5.1 percent spike by the Philadelphia Oil Service Index (NASDAQI:OSX). With the surge, the index reached a four-month closing high.
Housing stocks also showed a particularly strong move to the upside, driving the Philadelphia Housing Sector Index (NASDAQI:HGX) up by 4.5 percent to its best closing level of the year.
Networking, steel and computer hardware stocks also saw significant strength, moving higher along with most of the other major sectors.
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