- Nasdaq futures decline sharply ahead of the opening bell on Tuesday.
- Fed Chairman will testify on the semi-annual Monetary Policy Report this week.
- Factory Orders and ISM Services PMI data will be released later in the day.
S&P 500 futures fall 0.27%, Dow Jones futures drop 0.1%, and Nasdaq futures lose 0.62%.
S&P 500 (SPX), Dow Jones (DJIA), and Nasdaq (IXIC) indexes closed on Monday with a 0.12% loss, a 0.25% drop, and a 0.41% fall, respectively.
What to know before stock market opens
The Utilities Sector gained 1.65% on Monday, beating out the Real Estate Sector, which climbed 1.07% on the day. The Communications Services Sector declined 1.51% as the biggest-losing sector on Monday, followed closely by the Consumer Discretionary Sector, closing 1.27% lower.
Hewlett Packard Enterprise Co. (HPE) climbed 10.22% to kick off the new trading week, ending Monday at $17.15 per share. Tesla Inc. (TSLA) was the biggest decliner on the first trading day of the week, shedding 7.16% and wrapping up at $188.14 at the closing bell.
Assessing the latest developments in equity markets, “the quiet start to the week for US equities did see the Magnificent 7 (-0.85%) under-perform, with slightly more moderate losses for the NASDAQ (-0.41%),” said Jim Reid, global head of economics and thematic research at Deutsche Bank, and continued:
“There were contrasting moves within the Magnificent 7, with Tesla down -7.16% amid new price cuts and discounts by EV maker, while Nvidia (+3.60%) overtook Saudi Aramco to become the third largest company in the world by market cap. On the other hand, the equal-weighted version of the S&P 500 was up +0.24% on the day, as utilities (+1.65%) and banks (+1.58%) outperformed. Back in Europe, the STOXX 600 (-0.03%) was flat on the day, but there was a noticeable underperformance from the FTSE 100 (-0.55%).”
Nasdaq FAQs
The Nasdaq is a stock exchange based in the US that started out life as an electronic stock quotation machine. At first, the Nasdaq only provided quotations for over-the-counter (OTC) stocks but later it became an exchange too. By 1991, the Nasdaq had grown to account for 46% of the entire US securities’ market. In 1998, it became the first stock exchange in the US to provide online trading. The Nasdaq also produces several indices, the most comprehensive of which is the Nasdaq Composite representing all 2,500-plus stocks on the Nasdaq, and the Nasdaq 100.
The Nasdaq 100 is a large-cap index made up of 100 non-financial companies from the Nasdaq stock exchange. Although it only includes a fraction of the thousands of stocks in the Nasdaq, it accounts for over 90% of the movement. The influence of each company on the index is market-cap weighted. The Nasdaq 100 includes companies with a significant focus on technology although it also encompasses companies from other industries and from outside the US. The average annual return of the Nasdaq 100 has been 17.23% since 1986.
There are a number of ways to trade the Nasdaq 100. Most retail brokers and spread betting platforms offer bets using Contracts for Difference (CFD). For longer-term investors, Exchange-Traded Funds (ETFs) trade like shares that mimic the movement of the index without the investor needing to buy all 100 constituent companies. An example ETF is the Invesco QQQ Trust (QQQ). Nasdaq 100 futures contracts allow traders to speculate on the future direction of the index. Options provide the right, but not the obligation, to buy or sell the Nasdaq 100 at a specific price (strike price) in the future.
Many different factors drive the Nasdaq 100 but mainly it is the aggregate performance of the component companies revealed in their quarterly and annual company earnings reports. US and global macroeconomic data also contributes as it impacts on investor sentiment, which if positive drives gains. The level of interest rates, set by the Federal Reserve (Fed), also influences the Nasdaq 100 as it affects the cost of credit, on which many corporations are heavily reliant. As such the level of inflation can be a major driver too as well as other metrics which impact on the decisions of the Fed.
S&P and Nasdaq futures are presented by CME e-minis and Dow Jones futures are presented by CBOT e-mini.
Markets await US data, Fed Chairman Powell testimony
The US economic docket will feature January Factory Orders and February ISM Services PMI report on Tuesday.
Speaking on the policy outlook on Monday, Atlanta Federal Reserve (Fed) President Raphael Bostic said that he expects the Fed to lower the policy rate by 25 basis points twice in 2024. “Inflation is still widespread, with more than the usual share of items increasing above 5% with trimmed mean remaining stuck at 2.6%,” Bostic added, Reuters reports.
In its Semi-annual Monetary Policy Report published on Friday, the Fed reiterated that it’s not appropriate to reduce the policy rate until they have greater confidence inflation will move sustainably toward 2%.
Fed Chairman Jerome Powell will present the monetary policy report and respond to questions in a two-day testimony before the Congress, starting Wednesday.
On Friday, the US Bureau of Labor Statistics will release February jobs report, which will include Nonfarm Payrolls, the Unemployment Rate and wage inflation figures.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
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