Pre-Market Brief: Stocks Mixed As Recession, Rate Hike Fears Persist

March S&P 500 futures (ESH23) are trending up +0.39% this morning after three major U.S. benchmark indices slid for a third successive session and suffered a second consecutive week of losses on Friday as hawkish tone from the Federal Reserve and soft economic data bolstered investors' fears about a recession in the new year. Three major U.S. stock indexes were weighed down primarily by losses in the Utilities, Consumer Goods, and Oil & Gas sectors.

In Friday’s trading session, three U.S. benchmark indices ended lower, with the prospects of a “Santa Claus rally” in markets this year dimming as the majority of global central banks adopted tightening policies. In addition, New York Fed President John Williams said on Friday that a tight labor market and other factors are likely to keep price pressures elevated, cementing high interest rates for some time. However, Williams added that he does not expect a recession due to the Fed’s aggressive tightening.

“We still have a long way to go,” said San Francisco Federal Reserve Bank President Mary Daly on Friday, suggesting that the Fed’s policy rates could stay high into the first couple of months of 2024.

Data on Friday revealed that U.S. business activity slumped further in December as new orders dropped to their lowest level in over 2-1/2 years, but easing demand helped curb inflation.

“It feels as if finally the market is starting to understand that bad news is bad news, and that is what is starting to occur. Since the October bottoms, the market has continued to price in what I would consider a substantial amount of optimism at the fact the Fed could navigate and pilot a successful soft landing,” said Dave Wagner, an equity analyst and portfolio manager for Aptus Capital Advisors in Cincinnati.

Meanwhile, U.S. rate futures have priced in a 73.0% chance of a 25 basis point rate increase and a 27.0% chance of a 50 basis point hike at February's monetary policy meeting.

In the coming week, market participants will be monitoring a spate of economic data, including U.S. CB Consumer Confidence, Existing Home Sales, Crude Oil Inventories, third-quarter GDP, Initial Jobless Claims, Core Durable Goods Orders, Core PCE Price Index, PCE Price index, Personal Spending, Michigan Consumer Expectations, Michigan Consumer Sentiment, and New Home Sales.

The U.S. economic data slate is largely empty on Monday, but investors could focus on the U.S. NAHB Housing Market Index. Economists foresee this figure to stand at 34 in December, compared to the previous number of 33.

In the bond markets, United States 10-Year rates are at 3.528%, up +1.31%.

The Euro Stoxx 50 futures are up +0.55% this morning, boosted by energy firms, after a sharp selloff last week sparked by growing fears of a recession. European equities notched heavy losses last week after the European Central Bank eased the pace of its interest rate hikes but signaled significant tightening ahead to fight elevated inflation. “The central bank has a longer way to go in raising interest rates than the Fed,” ECB governing council member Klaas Knot said on Friday. 

Also, investors will likely focus on the comments by ECB Vice-President Luis de Guindos in Madrid later Monday for more clues about the thinking of the central bank policymakers.

Germany Business Expectations, Germany Ifo Business Climate Index, and Germany Current Assessment data were released today.

The German December Business Expectations stood at 83.2, stronger than expectations of 82.0.

The German December Ifo Business Climate Index has been reported at 88.6, stronger than expectations of 87.4.

The German December Current Assessment came in at 94.4, stronger than expectations of 93.5.

Asian stock markets today settled in the red. China’s Shanghai Composite Index (SHCOMP) closed down -1.92%, and Japan’s Nikkei 225 Stock Index (NIK) closed down -1.05%.

China’s Shanghai Composite today closed sharply lower as rising COVID-19 cases in the country offset commitments from the government to support economic growth. The country is facing an unprecedented surge in COVID-19 infections after the government scaled back several lockdown measures earlier this month, bolstering fears about a longer-than-expected reopening in China. A survey also revealed that Chinese business confidence was at its lowest level in about a decade, reflecting the impact of surging COVID-19 cases on economic activity.

At the same time, Japan’s Nikkei 225 Stock Index closed lower amid renewed speculation that the Bank of Japan could tighten its ultra-loose monetary policy. Media reports said that the Japanese government could revise a decade-old accord with the Bank of Japan over the latter’s 2% inflation target. The index's downward momentum was fueled by losses in the Communication, Steel, and Electrical/Machinery sectors. The Nikkei Volatility, which takes into account the implied volatility of Nikkei 225 options, closed up 8.89% to 17.76.

Pre-Market U.S. Stock Movers

Ardelyx Inc (ARDX) plunged over -12% in pre-market trading after the company provided an update regarding the appeal to the Complete Response Letter for the New Drug Application for XPHOZAH.

Tesla Inc (TSLA) rose over +4% in pre-market trading on speculation that the company could announce the Mexico EV plant this week.

Catalent Inc (CTLT) dropped more than -1% in pre-market trading after KeyBanc downgraded the stock to sector weight from overweight.

Hexo Corp (HEXO) slid about -9% in pre-market trading, extending Friday's losses after Canaccord lowered the firm's price target on the stock to C$0.20 from C$0.25, keeping a hold rating on the shares.

Synaptogenix Inc (SNPX) tumbled over -15% in pre-market trading, extending Friday's losses after the company announced results from the Phase 2 clinical trial of Bryostatin-1 and filed to sell 26.125M shares of common stock for holders. 

You can see more pre-market stock movershere

Today’s U.S. Earnings Spotlight: Monday - December 19th

Heico (HEI), Heico A (HEIa), Siemens Gamesa ADR (GCTAY), Sprott Physical Gold and Silver Trust (CEF), Eaton Vance Tax Managed Diversified (ETY), Uranium Energy (UEC), Steelcase (SCS), GoGold Resources Inc. (GLGDF), Mitek (MITK), Oramed (ORMP), Blade Air Mobility (BLDE), Mesabi Trust (MSB), Byrna Technologies (BYRN), Inspirato (ISPO), Citius Pharma (CTXR), Inotiv (NOTV). 

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