Dow Futures Rise as Tech Stocks Recover; Fed Meeting Looms

The U.S. stock futures traded higher on Monday, as investors shrugged off the disappointing jobs report on Friday and focused on the positive earnings season and the upcoming Federal Reserve meeting. The Dow Jones Industrial Average futures rose 0.3%, while the S&P 500 futures and the Nasdaq 100 futures gained 0.4% and 0.5%, respectively.

The U.S. economy added 199,000 jobs in December, missing the expectations of 422,000, according to the Labor Department. The unemployment rate, however, fell to 3.9%, the lowest level since February 2020. The weak jobs data raised doubts about the strength of the economic recovery and the pace of the Fed’s monetary policy tightening.

Dow Futures Rise as Tech Stocks Recover Fed Meeting Looms
Dow Futures Rise as Tech Stocks Recover; Fed Meeting Looms

However, the market sentiment improved as the earnings season continued to deliver strong results, with 73% of the S&P 500 companies that have reported so far beating the analysts’ estimates, according to FactSet. Some of the notable companies that will report this week include Microsoft, Alphabet, Amazon, Tesla, Netflix, and Starbucks.

Tech stocks rebound after a sharp sell-off

The tech-heavy Nasdaq Composite index, which fell 2.1% on Thursday, its biggest one-day drop in over four months, bounced back on Monday, as some of the most popular tech stocks recovered from their losses. Netflix, which plunged 21.4% on Thursday after missing its subscriber growth target, rose 3.6% on Monday. Tesla, which dropped 12.6% on Thursday after reporting lower-than-expected deliveries, gained 4.4% on Monday.

The tech sector has been under pressure recently, as the rising bond yields and inflation expectations have made the high-growth stocks less attractive. The yield on the 10-year Treasury note, which moves inversely to the bond price, climbed to 1.86% on Monday, its highest level since May 2020. The higher yields also increase the borrowing costs for the companies and consumers, potentially hurting the economic growth.

Fed meeting in focus amid inflation concerns

The main event of the week will be the Federal Reserve’s two-day policy meeting, which will conclude on Wednesday with a statement and a press conference by Fed Chair Jerome Powell. The Fed is widely expected to raise its benchmark interest rate by 25 basis points, the first hike since December 2018, as it tries to tame the surging inflation.

The consumer price index (CPI), the main gauge of inflation, rose 7% year-over-year in December, the highest level since June 1982, according to the Labor Department. The core CPI, which excludes food and energy, increased 5.5%, the highest level since February 1991.

The market will be looking for any clues on the Fed’s outlook for the economy and the future rate hikes, as well as the pace of its bond-buying tapering. The Fed announced in December that it would reduce its monthly asset purchases by $30 billion, from $120 billion to $90 billion, starting in January. Some analysts expect the Fed to accelerate its tapering and end it by March, paving the way for more rate hikes later this year.

Leave a Reply

Your email address will not be published. Required fields are marked *