S&P 500, Nasdaq Brace For Muted Open After Record Highs: What’s Affecting Stock Futures? – Invesco QQQ Trust, Series 1 (NASDAQ:QQQ), SPDR S&P 500 (ARCA:SPY)

Early indications from the futures market suggest caution after Wednesday’s exhilarating run. Earnings news continues to be positive, reinforcing the strength in corporate profit growth. The rate-cut premise based on which the market has been rallying could be put to the test with a couple of labor market readings due Thursday.

After the Bank of Canada became the first G-7 central bank to cut rates, the first one in about four years, all eyes would be on its counterpart from across the Atlantic. The European Central Bank is widely expected to begin lowering rates despite inflation remaining an irritant. A cut by the bank could provide a further thrust to Wall Street ahead of next week’s Federal Open Market Committee meeting.

In premarket trading on Thursday, the SPDR S&P 500 ETF Trust (NYSE:SPY) edged down 0.01% to $534,61, while the Invesco QQQ ETF (NASDAQ:QQQ) traded up 0.09% at $463.93, according to Benzinga Pro data.

Cues From Previous Session:

U.S. stocks advanced strongly on Wednesday, with the smaller-than-expected private jobs added in May and the stronger-than-expected service sector activity data providing a big thrust to the market. These data allayed both inflation and growth concerns. The increase in risk appetite manifested well and truly in growth-focused tech stocks.

Nvidia Corp. (NASDAQ:NVDA) rallied over 5%, leading the gains in the tech space.

The Nasdaq Composite and the S&P 500 Index hit fresh intraday and closing highs during the session.

Insights From Analysts:

While the market hovered in record territory, an analyst sounded a note of caution. Morgan Stanley Chief Investment Officer Lisa Shalett said the summer months could bring more uncertainty and volatility much against investors’ expectations of the market grinding higher.

Among the risks to the rally are mixed economic data, likely tightening of financial conditions as bank reserves and balances in a key Fed lending facility dwindle and uncertainty surrounding the outcome of a U.S. presidential election with major economic implications.

Greg Branch, founder & managing partner of Branch Global Capital Advisors, said in a CNBC interview a 10-15% pullback from here is warranted, as he is wary of higher corporate profit growth and potential acceleration in GDP growth keeping inflation above the Fed’s 2% target, he said. The analyst says further market downside is likely if not for the techs becoming an important component of indices.

Upcoming Economic Data:

• The Labor Department is due to release a duo of reports at 8:30 a.m. EDT. The customary jobless claims report is likely to show that the number of individuals claiming unemployment benefits may have come in at 220,000 in the week ended June 1, up slightly from the 219,000 in the previous reporting week.
• The revised first-quarter productivity and costs report will also be released at 8:30 a.m. EDT. A preliminary report released in early May showed a 0.3% quarter-over-quarter increase in first-quarter non-farm productivity, down from 3.2% in the fourth quarter of 2023. Unit labor costs climbed 4.7%, faster than the previous quarter’s 0.4% increase.
• The Commerce Department is scheduled to release its trade balance report, also at 8:30 a.m. EDT. The consensus estimate calls for a widening of the deficit from $69.4 billion in March to $76.2 billion in April.

See Also: How To Trade Futures

Stocks In Focus:

• ChargePoint Holdings, Inc. (NYSE:CHPT) fell over 4% in premarket trading following the company’s earnings announcement.
• Among the other stocks reacting to earnings were Lululemon Athletica Inc. (NASDAQ:LULU) (up 7.40%), Five Below, Inc. (NASDAQ:FIVE) (down over 16.50%), Semtech Corporation (NASDAQ:SMTC) (up nearly 9%) and Smartsheet Inc. (NYSE:SMAR) (up over 18%).
• ABM Industries Incorporated (NYSE:ABM), G-III Apparel Group, Ltd. (NASDAQ:GIII), Ciena Corporation (NYSE:CIEN), Big Lots, Inc. (NYSE:BIG), J. M. Smucker Company (NYSE:SJM) and Nio, Inc. (NYSE:NIO) are among the notable companies reporting their quarterly results before the market open.
• Those reporting after the close include DocuSign, Inc. (NASDAQ:DOCU), Vail Resorts, Inc. (NYSE:MTN), Samsara Inc. (NYSE:IOT) and Zumiez Inc. (NASDAQ:ZUMZ).

Commodities, Bonds And Global Equity Markets:

Crude oil and gold futures rose for a second straight session, while the benchmark 10-year Treasury note yield is marginally up after settling Wednesday’s session below the 4.3% level for the first time since early April. Bitcoin (CRYPTO: BTC) traded slightly higher and was shy of the $71K level.

Asian stocks closed mostly higher, tracking Wall Street’s gains overnight, although the Chinese and New Zealand markets retreated. The South Korean market remained closed for a public holiday. The European markets were firm in early trading ahead of the ECB’s rate decision, with economists modeling a quarter-point rate cut by the central bank. The rate decision is due at 8:15 a.m. EDT followed by a press conference hosted by President Christine Lagarde at 8:45 a.m. EDT.

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