The major U.S. index futures are currently pointing to a modestly lower open on Monday, with stocks likely to give back ground following the rally seen to close out the previous week.
Traders may look to cash in on the rally seen over the two previous sessions 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 15.5 percent, according to CME Group’s FedWatch Tool
Stocks moved sharply higher over the course of the trading day on Friday, extending the recovery rally seen during trading Thursday’s session. The major averages more than offset the steep drop seen on Wednesday, with the Dow and the S&P 500 reaching new record closing highs.
The major averages pulled back off their best levels going into the close but remained in positive territory. The Nasdaq surged 267.31 points or 1.7 percent to 15,628.95, the S&P 500 jumped 52.42 points or 1.1 percent to 4,958.61 and the S&P 500 climbed 134.58 points or 0.4 percent to 38,654.42.
For the week, the Nasdaq shot up by 1.1 percent, while the Dow and the S&P 500 both jumped by 1.4 percent.
The extended rally on Wall Street came amid a positive reaction to earnings news from Facebook parent Meta Platforms (NASDAQ:META) and online retail giant Amazon (NASDAQ:AMZN).
Shares of Meta are soared by 20.3 percent after the company reported better than expected fourth quarter results, announced its first-ever quarterly dividend and authorized a $50 billion share buyback.
Amazon also spiked by 7.9 percent after reporting fourth quarter results that exceeded analyst estimates on both the top and bottom lines.
Traders were also reacting to a closely watched report from the Labor Department showing much stronger than expected job growth in the month of January.
The Labor Department said non-farm payroll employment spiked by 353,000 jobs in January compared to economist estimates for an increase of about 180,000 jobs.
The report also showed significantly stronger than previously reported job growth in December, with employment surging by 333,000 jobs during the month compared to the jump of 216,000 jobs that had been reported.
The Labor Department also said the unemployment rate in January came in unchanged from the previous month at 3.7 percent. Economists had expected the unemployment rate to inch up to 3.8 percent.
While the data further reduces the chances of an interest cut in March, Larry Tentarelli, Chief Technical Strategist, Blue Chip Daily Trend Report, said he views a strong jobs market as a “net positive for both the economy and the stock market.”
Retail stocks saw substantial strength on the day, with the strong jobs data generating optimism about the outlook for consumer spending.
Reflecting the strength in the retail sector, the Dow Jones U.S. Retail Index surged by 3.1 percent to its best closing level in two years.
Considerable strength was also visible among brokerage stocks, as reflected by the 1.9 percent gain posted by the NYSE Arca Broker/Dealer Index.
Software, semiconductor and airline stocks have also showed strong moves to the upside over the course of the session.
On the other hand, gold stocks pulled back sharply after rallying on Thursday, resulting in a 3.4 percent nosedive by the NYSE Arca Gold Bugs Index. The sell-off by gold stocks came amid a notable decrease by the price of the precious metal.
Oil service stocks also came under pressure amid a steep drop by the price of crude oil, moving significantly lower along with interest rate-sensitive commercial real estate, utilities and telecom stocks.