NASDAQ 100, Dow Jones, S&P 500: Rally Pauses as Stock Futures Dip, Powell’s Testimony in Focus

Investors Waiting for Next Bullish Catalyst

Last week, the S&P 500 reached its highest level since April 2022 and marked its fifth consecutive positive week. With the S&P 500 and Nasdaq surpassing key resistance levels and supported by stronger volume and broader participation, markets reached short-term overbought levels. Although the triple witching’ options expiration on Friday added to volatility, the subsequent sell-off wasn’t overly dramatic. This left markets digesting their gains and eagerly awaiting the next powerful catalyst.

Homebuilding Shares Boosted

Interestingly, homebuilding stocks bucked the downtrend on Tuesday, boosted by stronger-than-expected data on housing starts and building permits. The iShares U.S. Home Construction ETF (ITB) managed to add 1% amidst the overall market decline.

Yields Higher Ahead of Powell Testimony

In terms of the broader economic outlook, U.S. Treasury yields climbed as investors awaited Federal Reserve Chairman Jerome Powell’s testimony before Congress. Powell is scheduled to testify before the House Financial Services Committee, and investors will be looking for more clarity on monetary policy and the economy. After the central bank’s recent meeting, policymakers indicated the possibility of two more quarter-percentage point rate hikes this year.

Powell to Shape Investor Expectations

While Powell acknowledged the need to restore price stability, he also hinted at the Fed’s cautious approach, waiting to observe how the economy responds to the 500 basis points working their way into the broader economy. On Wednesday, several Fed officials, including Powell, will make remarks, further shaping investors’ expectations.

Technicals Indicate Overbought Conditions

Overall, with market sentiment remaining positive but overbought, Powell’s testimony could potentially provide support. However, if he adopts a more hawkish stance, markets might need to unwind recent gains until a more substantial catalyst emerges. Additionally, quarterly earnings reports from Winnebago and KB Home are expected before and after the closing bell, respectively.

Short-Term Outlook:  Cautious Trade without Catalyst

In conclusion, investors are treading cautiously as stock futures open slightly lower, pausing after a recent market rally. FedEx’s weaker-than-expected revenue results weigh on sentiment, while homebuilding stocks demonstrate resilience. Attention turns to Jerome Powell’s testimony for insights into monetary policy and the economy. With markets in an overbought state, investors eagerly anticipate a powerful catalyst while analyzing the latest economic data and corporate earnings reports.