- US stock index futures are trading in negative territory on Wednesday.
- The US economic calendar will include the revision of the fourth quarter GDP.
- PCE inflation and jobless claims data will be released on Thursday.
S&P 500 futures fell 0.33%, Dow Jones futures fell 0.35% and Nasdaq futures fell 0.38%.
The S&P 500 (SPX), Dow Jones (DJIA) and Nasdaq (IXIC) indices closed Tuesday up 0.17%, down 0.25% and up 0.37%, respectively.
What you need to know before the markets open
The public services sector rose 1.9% on Tuesday, being the best performing sector of the day, followed by the communication services sector, which rose 1%. The energy sector recovered from its daily lows, but lost 0.43%.
The conglomerates Norwegian Cruise Line Ltd. (NCLH) and Carnival Corp. (CCL) were the companies that rose the most on the day. NCLH rose 19.8%, while CCL added almost 17%. Tuesday's worst performer was Nasdaq-listed Workday Inc. (WDAY), which fell 4% to $295.05 at the close.
Assessing the latest developments in financial markets, “among stocks, there were some modest moves, with the S&P 500 (+0.17%) closing just below its all-time high, having basically been in a narrow band since Nvidia's results last week. It is currently down -0.21% on the week, meaning it still needs to recover a bit to reach the joint record of 16 weekly advances in the last 18 (currently at 15/17 for the first time since 1989),” said Jim Reid, global head of economics and thematic research at Deutsche Bank, and continued:
“Small caps continued to outperform, with the Russell 2000 up +1.34%, in contrast to the Dow Jones, which was down -0.25%. Technology stocks marginally outperformed, with the NASDAQ up + 0.37% and the Magnificent 7 +0.22%. It is a sign of the times that Apple announced yesterday the closure of its electric car unit that it created in 2014 and which at the time promised autonomous driving within a reasonable time. “That they did it in part to divert resources to AI shows how trends can change.”
Frequently asked questions about the S&P 500
What is the S&P 500?
The S&P 500 is a widely followed stock index that measures the performance of 500 public companies and is considered a broad measure of the U.S. stock market. The influence of each company in the calculation of the index is weighted based on market capitalization. This is calculated by multiplying the number of listed shares of the company by the share price. The S&P 500 Index has achieved impressive returns: $1.00 invested in 1970 would have produced a return of almost $192.00 in 2022. The average annual return since its inception in 1957 has been 11.9%.
How are companies chosen to be included in the S&P 500?
Companies are selected by committee, unlike other indices where they are included based on established standards. Still, they must meet certain eligibility criteria, the most important of which is market capitalization, which must be equal to or greater than $12.7 billion. Other criteria are liquidity, domicile, market capitalization, sector, financial viability, listing time, and representation of the sectors of the United States economy. The nine largest companies in the index represent 27.8% of the index's market capitalization.
How can I trade the S&P 500?
There are several ways to trade the S&P 500. Most retail brokers and spread betting platforms allow traders to use Contracts for Difference (CFDs) to place bets on price direction. In addition, you can buy index funds, mutual funds and exchange-traded funds (ETFs) that track the price of the S&P 500. The most liquid of the ETFs is the London Stock Exchange ETF. The most liquid of the ETFs is State Street Corporation's SPY. The Chicago Mercantile Exchange (CME) offers futures contracts on the index and the Chicago Board of Options (CMOE) offers options, as well as ETFs, inverse ETFs, and leveraged ETFs.
What factors drive the S&P 500?
There are many factors that drive the S&P 500, but primarily it is the aggregate performance of its component companies, revealed in their quarterly and annual earnings reports. US and global macroeconomic data also contribute, influencing investor sentiment, which if positive, drives earnings. The level of interest rates, set by the Federal Reserve (Fed), also influences the S&P 500, as it affects the cost of credit, on which many companies largely depend. Therefore, inflation can be a determining factor, as well as other parameters that influence the decisions of the Federal Reserve.
Pay attention to the GDP review before the PCE inflation report
The US Bureau of Economic Analysis will announce the second estimate of fourth-quarter Gross Domestic Product (GDP) growth on Wednesday. Figures from the personal consumption expenditure (PCE) price index, the Federal Reserve's (Fed) preferred inflation gauge, will be scrutinized by market participants on Thursday.
The economic calendar on Thursday will also include weekly initial jobless claims for the week ending February 24, which are expected to rise to 210,000 from 201,000 the previous week.
On Wednesday, the US Census Bureau reported that durable goods orders fell 6.1%, or $18 billion, to $276.7 billion in January. This reading followed the 0.3% decline recorded in December and was worse than the market expectation of a 4.5% contraction.
New York Fed President John Williams will speak at today's session. Williams stated on Friday that he expects the US central bank to begin lowering the official interest rate in the second half of the year.
According to CME's FedWatch tool, markets are almost fully pricing in the possibility of no change in Fed interest rates in March and see an 85% chance of another pause in May.
Salesforce Inc. (CRM), Snowflake Inc. (SNOW) and Monster Beverage Corp. (MNST) are some of the major companies set to release their quarterly earnings reports after the close of trading on Wednesday.
Inflation FAQ
What is Inflation?
Inflation measures the rise in prices of a representative basket of goods and services. General inflation is usually expressed as a month-on-month and year-on-year percentage change. Core inflation excludes more volatile items, such as food and fuel, which can fluctuate due to geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the target level of central banks, which are mandated to keep inflation at a manageable level, typically around 2%.
What is the Consumer Price Index (CPI)?
The Consumer Price Index (CPI) measures the variation in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage of inter-monthly and inter-annual variation. Core CPI is the target of central banks as it excludes food and fuel volatility. When the underlying CPI exceeds 2%, interest rates usually rise, and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually translates into a stronger currency. The opposite occurs when inflation falls.
What is the impact of inflation on currency exchange?
Although it may seem counterintuitive, high inflation in a country drives up the value of its currency and vice versa in the case of lower inflation. This is because the central bank will typically raise interest rates to combat higher inflation, attracting more global capital inflows from investors looking for a lucrative place to park their money.
How does inflation influence the price of Gold?
Gold was once the go-to asset for investors during times of high inflation because it preserved its value, and while investors often continue to purchase gold for its safe haven properties during times of extreme market turmoil, this is not the case. most of the time. This is because when inflation is high, central banks raise interest rates to combat it.
Higher interest rates are negative for Gold because they increase the opportunity cost of holding Gold versus an interest-bearing asset or placing money in a cash deposit account. On the contrary, lower inflation tends to be positive for Gold, as it reduces interest rates, making the shiny metal a more viable investment alternative.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
