Wall Street was on course for modest gains at Tuesday’s opening bell, with U.S. stock futures edging higher after the major indices struggled for direction and finished marginally lower in the previous session.
An easing in oil’s earlier rally provided some support for equities. U.S. crude futures were up around 0.4% after jumping as much as 3% earlier in the day as negotiations over reopening the Strait of Hormuz appeared to remain deadlocked.
The pullback in oil has reduced some immediate pressure on sentiment, but investors face another potentially significant market catalyst this week as fresh U.S. inflation figures approach.
Wall Street turns its attention to Wednesday’s CPI report
Consumer price data is due from the Labor Department on Wednesday, followed by producer inflation figures on Thursday.
The releases could take on additional importance after Friday’s employment report unexpectedly showed a decline in U.S. jobs, putting the relationship between inflation, economic growth and Federal Reserve policy back at the centre of the market outlook.
“US equities are hovering near record highs, but the next leg of the rally will depend on Wednesday’s US inflation report,” said Daniela Hathorn, Senior Market Analyst at Capital.com.
“After another strong earnings season, particularly among the technology giants, investors have become increasingly comfortable with the idea that the economy can continue expanding without forcing the Federal Reserve into further policy tightening,” she added. “Whether that optimism proves justified now hinges on the inflation data.”
Major indices pause after record-setting week
Monday’s session offered little direction following the strong performance of U.S. equities during the previous week.
The Dow Jones Industrial Average finished 60.95 points, or 0.1%, lower at 53,975.98. The Nasdaq Composite declined 85.26 points, or 0.3%, to 26,605.36, while the S&P 500 eased 4.53 points, or 0.1%, to 7,753.11.
The consolidation followed a new record closing high for the S&P 500 on Friday, leaving traders with less incentive to chase the market higher immediately ahead of this week’s inflation releases.
Oil volatility adds another risk for markets
The Strait of Hormuz remained a major source of uncertainty after Iran warned that the waterway would stay closed unless the United States agreed to a series of conditions.
Iran and Oman are reportedly making progress towards an agreement concerning the strait, although Tehran has indicated that it remains resistant to talks with Washington.
The uncertainty triggered another surge in crude prices on Monday and produced sharp differences in sector performance across Wall Street.
Energy shares were major beneficiaries. With U.S. crude futures climbing almost 5%, the Philadelphia Oil Service Index surged 5.8% and the NYSE Arca Oil Index rose 5.3%.
Oil rally creates clear winners and losers
Software was another pocket of strength during Monday’s session, with the Dow Jones U.S. Software Index advancing 1.9%.
Higher crude prices had the opposite effect on airlines as concerns over fuel costs sent the NYSE Arca Airline Index down 4.4%.
Chipmakers also experienced substantial selling pressure, with the Philadelphia Semiconductor Index dropping 2.9%.
Tuesday’s modestly positive futures signal suggests some of that pressure is easing as oil retreats from its earlier highs. However, with the S&P 500 already close to record territory, Wednesday’s inflation figures could prove more important in determining the market’s next direction.
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