NASDAQ, S&P 500 Futures Signal Shaky Start: Why This Analyst Thinks A  Headwind Lies Ahead

Stocks appear to pause for a breather after last week’s strong rally, as economists discuss the possibility of a looming recession. With the debt limit impasse in the rearview mirror, the market’s focus shifts to the June Federal Open Market Committee meeting, which is a week away. Opinions are divided over whether the Fed will pause or continue with a measured pace of rate increases.

Cues From Past Week’s Trading:

U.S. stocks closed the truncated week ended June 2 solidly higher, with traders drawing encouragement from the passage of the budget deal that helped avert an economic collapse. A strong May jobs report was perceived as good news, allaying recession fears among traders. Shares of companies levered to the artificial intelligence technology rallied hard, providing a lift to the market.

The Nasdaq Composite settled at the highest level since April 20, 2022, with the tech-heavy index now higher for six straight weeks, and the S&P 500 Index closed at a 9-1/2 month high.

U.S. Indices’ Performance In Week Ended June 2 

Index

Performance (+/-)

Value

Nasdaq Composite

+2.04%

13,240.77

S&P 500 Index

+1.83%

4,282.37

Dow Industrials

+2.02%

33,762.76

Analyst Color:

The May non-farm payrolls report, the budget deal and hopes of the Fed skipping a rate hike in June helped spark a broad-based rally on Friday, said LPL Financial Chief Global Strategist Quincy Crosby.

Friday’s rally was inclusive, the analyst said, noting that the Russel 2000 marched higher along with its large-cap peers – a dynamic that has been missing since the onset of the banking crisis.

The Russell 2000’s small-cap and mid-cap participation is especially important due to the index being a bellwether for the broader economy and the fact that it comprises a cross-section of small and regional banks, Crosby said.

“Today’s rally doesn’t mean the market isn’t facing significant headwinds,” the analyst warned.

“To be sure, the ramifications of the deluge of Treasury notes — approximately $1 trillion worth of notes — soon to be auctioned by the Treasury as it replenishes its General Account, could ignite a significant sapping of liquidity from financial markets.”

Crosby is of the view the Fed’s insinuation that a June hike is off the table could be reflecting the central bank’s concerns regarding the potential for increased market volatility stemming from dissipating liquidity.

Futures Today

U.S. Futures’ Performance On Monday 

Index

Performance (+/-)

Nasdaq 100 Futures

-0.07%

S&P 500 Futures

-0.04%

Dow Futures

+0.12%

R2K Futures

-0.42%

In premarket trading on Monday, the SPDR S&P 500 ETF Trust (NYSE: SPY) eased 0.04% to $427.74 and the Invesco QQQ ETF(NASDAQ: QQQ) slipped 0.30% at $353.58, according to Zenger News Pro data.

Upcoming Economic Data:

The economic calendar of the week is fairly light, with a couple of service sector readings and the routinely scheduled weekly jobless claims report among the key catalysts to watch out for.

S&P Global is scheduled to release the results of its final service sector purchasing managers’ index for May as well as the composite PMI for the same month at 9:45 a.m. EDT. Economists, on average, expect the service sector PMI to be left unrevised at 55.1, which marked a 13-month-high. This compares to the April reading of 53.4. The final composite PMI is also expected to be left unrevised at 54.4, also a 13-month-high.

The Institute for Supply Management’s non-manufacturing PMI is set to be released at 10 a.m. EDT. The non-manufacturing PMI for May is expected to edge down 0.1 points to 51.8.

The Commerce Department will release its factory goods orders data at 10 a.m. EDT. The consensus estimate calls for a 1.1% month-over-month increase in factory orders for April following a 0.9% climb in March.

The Treasury is set to auction three-month and six-month bills at 11:30 a.m. EDT.

Stocks In Focus:

• Palo Alto Networks, Inc. (NASDAQ: PANW) rose over 5% in premarket trading as the stock is all set to join the S&P 500 Index on June 20. Dish Network Corp. (NASDAQ: DISH), which is booted out of the index to make way for Palo Alto fell nearly 5%.
• Apple, Inc. (NASDAQ: AAPL) gained moderately ahead of its annual Worldwide Developers Conference that is set to kickstart Monday at 1 p.m. EDT. The stock also received a price target boost from Oppenheimer.
• AI-levered stocks, which rallied hard last week, were seen pulling back. C3.ai, Inc. (NYSE: AI), Nvidia Corp. (NASDAQ: NVDA) and Palantir Technologies, Inc. (NYSE: PLTR) were all lower in premarket trading.
• Science Applications International Corp. (NYSE: SAIC) and GitLab, Inc. (NASDAQ: GTLB) are among the notable companies due to release their earnings on Monday.
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Produced in association with Benzinga

Edited by Jessi Rexroad Shull and Alberto Arellano