U.S. stock futures dip despite strong retail data

Read: What’s in among stock-market traders — and what’s out — according to Charles Schwab survey

What’s driving markets

Sales at retailers jumped 1.3% in October, suggesting U.S. consumers are still spending a lot money despite the Federal Reserve’s efforts to slow the economy. Economists polled by The Wall Street Journal had forecasted a rise of 1.3%.

See: Retail sales jump in October in sign of economic strength.

Still, equity index futures edged lower as retailer Target
TGT,
-14.89%
delivered a poorly-received earnings report, its stock dropping more than 15% in premarket trade.

Worries that a missile which hit Poland on Tuesday could spark a confrontation between Moscow and NATO are being shrugged off amid signs Washington thinks the projectile may have been an errant Ukrainian attempt to destroy incoming Russian ordnance.

Stocks are up six of the previous eight trading days after last week’s softer-than-expected October consumer prices report and Tuesday’s weaker-than-forecast factory gate prices data raised hopes that inflation has peaked and the Federal Reserve can consider being less aggressive in raising interest rates.

“The tame U.S. producer prices reading underpinned hopes that pipeline inflation pressure is easing and pulled bond yields lower again,” said Ian Williams, strategist at Peel Hunt.

The 2-year Treasury yield
TMUBMUSD02Y,
4.361%,
which is particularly sensitive to monetary policy, was up 4.2 basis points to 4.387%, but sits more than 30 basis points off its 15-year high touched at the start of November.

“The broad market rally continues, and investors generally remain constructive for now….As reflected by the MOVE index, and given the macro dominance and the retracement in real rates, a decline in bond market volatility has been more of a driver of equity index performance than VIX – while it’s constructive – should be watched closely,” said Stephen Innes, managing partner at SPI asset Management.

The S&P 500 is up 11.6% from its 2022 closing low hit on October 12, but remains down 16.3% for the year to date in the face of the Fed raising borrowing costs by 375 basis points in the space of just eight months.

Consequently, traders are always keen to hear what Fed officials have to say. New York Fed President John Williams is due to speak at a Treasury market conference at 9:50 a.m.; Fed Vice Chair Michael Barr is set to testify on regulation at the House Financial Services Committee at 10 a.m.; and Fed Governor Christopher Waller is down to talk on the economic outlook at 2:35 p.m. All times Eastern.

Other economic data set for release on Wednesday include October industrial production at 9:15 a.m. and September business inventories alongside the NAHB home builders index at 10 a.m.

Meanwhile, a reminder that inflationary pressures can prove pernicious came from the U.K., where the CPI index rose 11.1% for the year to October, the fastest in 41 years.

Helping lead the way in the latest equity market rebound is the semiconductor sector. The PHLX Semiconductor index (SOX)
SOX,
-2.90%
hit a two year low in mid-October as investors worried about high valuations amid concerns slowing global growth would hit demand for consumer electronics.

However, the SOX has since rallied 30% as investors such as Warren Buffett, with his purchase of a $4 billion dollar stake in Taiwan Semiconductor Manufacturing
2330,
+1.46%,
spy value in the sector. To that end traders will be keeping an eye on the results of chip-darling Nvidia
NVDA,
-3.10%,
due for release after Wednesday’s closing bell.

Read: Warren Buffett’s chip-stock purchase is a classic example of why you want to be ‘greedy only when others are fearful’

Companies in focus

• Target Corp. 
  TGT,
  -14.89%
  tumbled in premarket trading Wednesday, after the discount broadline retailer reported fiscal third-quarter profit that was well below expectations even as revenue beat, and it provided a downbeat same-store sales outlook for the current quarter. 

• Lowe’s Inc. 
  LOW,
  +4.38%,
  the home improvement retailers, reported third-quarter earnings on Wednesday that beat analysts’ expectations, with revenue up compared to the same period last year.

• Shares of Advance Auto Parts Inc.
  AAP,
  -15.09%
  plunged 15% in premarket trading Wednesday, after the specialty retailer missed Wall Street expectations for its quarterly earnings as it sold more of its cheaper in-house brands than national brands.