U.S. stock indexes looked likely to drift higher at Tuesday’s open, despite what is expected to be a seasonally challenging month for equities, following the best August returns in more than 30 years.
How are stock benchmarks performing?
Futures for the Dow Jones Industrial Average YM00, -0.33% YMU20, -0.33% were off 67 points at 28,343, a 0.3% decline; those for the S&P 500 index ES00, +0.01%, ESU20, +0.01% were less than a point higher at 3,499; while Nasdaq-100 futures NQ00, +0.57% NQU20, +0.57% advanced 65 points at 12,179, a rise of 0.5%.
On Monday, the Dow DJIA, -0.78% shed 223.82 points, or 0.8%, to end at 28,430.05. The S&P 500 SPX, -0.21% fell 7.70 points, or 0.2%, ending at 3,500.31. The Nasdaq Composite COMP, +0.68% rose 79.82 points, 0.7%, to end at a record 11,775.46, its 41st record close of 2020.
The S&P 500 clinched its best August return since 1986 and the Dow its best return for that month since 1984, while the Nasdaq recorded its strongest August since 2000
What’s driving the market?
Buying of large-capitalization growth and technology stocks, a major theme of trading since the coronavirus pandemic took hold in March, appeared set to continue to start trade in September.
Tesla and Apple, underscored that theme early Tuesday, with shares of the electric-vehicle maker and the iPhone creator on pace to extend a rally after splitting their popular shares on Monday.
Still, investors are anxious going into the new month as they wrestle with stock valuations elevated against a backdrop of a Federal Reserve that has implied that it will keep rates ultra-low even if inflation pressures begin to percolate.
“Technology has regained leadership with broad-based movement back to new highs, and Growth dominating, but bifurcation is growing larger,” Mark Newton, technical analyst at Newton Advisors, said.
He cautioned that breadth, or the number of stocks rising versus those declining, is offering a cautious sign. “Breadth has tailed off ‘big-time’ with more than 5 occurrences in the last few weeks of more decliners than advancing issues,” he said.
The Fed’s new stance on inflation targeting is still being digested on Wall Street and has so far resulted in more pressure on the U.S. dollar, a factor that may also support further buying in stocks that boast large overseas businesses.
Looking ahead, the market is awaiting the U.S. IHS Markit purchasing managers index at 9:45 a.m. ET and the purchasing managers index report on manufacturing activity from the Institute for Supply Management for August at 10 a.m., with a consensus forecast for 54.7.
Overnight the eurozone IHS manufacturing purchasing managers index pointed to improving conditions in August, as the region’s recovery from the coronavirus pandemic continued, while in China the Caixin purchasing managers index, which is weighted toward small, private manufacturers, rose to 53.1 in August from 52.8 in July.
A report on U.S. construction spending for July also is due at 10 a.m., with report on motor vehicle sales coming throughout the day.
Among Fed speakers, Fed Gov. Lael Brainard is slated to speak at 1 p.m.
Which stocks are in focus?
- Shares of Tesla Inc. TSLA, +12.56% extended its recent rocket ride by surging 6.3% in premarket trading Tuesday, putting them on track to open in record territory well above the $500 mark.
- Zoom Video Communications Inc. ZM, +8.63% made as much money in May, June and July as it did in all of 2019, beating even the outsize expectations of Wall Street and sending its stock, its recent quarterly results out on Monday revealed.
How are other assets trading?
The yield on the 10-year Treasury note TMUBMUSD10Y, 0.715% added 1.4 basis points to 0.72%, after adding 15.9 basis points during August. Bond prices move inversely to yields.
Gold GCZ20, +0.96% jumped $19.90, or 1%, to $1,998.50 an ounce, trading around its highest level in about two weeks. West Texas Intermediate crude for October delivery CL.1, +0.91% traded 40 cents, or 0.9%, at $43.02 a barrel on the New York Mercantile Exchange.
The ICE U.S. Dollar Index DXY, -0.33%, which tracks the currency versus a basket of six major rivals, fell 0.3% to extend its decline this year and trade around its lowest level since 2018.