U.S. stock futures on Wednesday were firmer, though traders seemed wary of making overly bold bets ahead of the Federal Reserve’s monetary policy decision.
How are stock-index futures trading
-
S&P 500 futures
ES00
rose 15 points, or 0.4%, to 3881 -
Dow Jones Industrial Average futures
YM00
climbed 89 points, or 0.3%, to 32774 -
Nasdaq 100 futures
NQ00
eased 48 points, or 0.4%, to 11380
On Tuesday, the Dow Jones Industrial Average
DJIA
fell 80 points, or 0.24%, to 32653, the S&P 500
SPX
declined 16 points, or 0.41%, to 3856, and the Nasdaq Composite
COMP
dropped 97 points, or 0.89%, to 10891. The Nasdaq Composite is up 5.5% from its 2022 closing low, but remains down 30.4% for the year to date.
What’s driving markets
Equity futures were a tad higher, while Treasury yields and the dollar were little changed as the market steeled itself for the latest Fed announcement on interest rates.
Movement in the expected trajectory of borrowing costs have been a major driver of stocks in 2022. In its battle to combat inflation running at 40-year highs, the Fed has raised interest rates from zero in February to a range of 3% to 3.25%, a tightening of liquidity that dragged the S&P 500 down 19.1% for the year to date.
Investors have priced in another 75 basis point hike by the Fed on Wednesday, the fourth such chunky rise in a row. However, stocks have rallied off recent lows on hopes Chairman Jerome Powell may signal the pace of rate hikes may slow from hereon.
“Investors are waiting for clues from the Federal Reserve about the path of rate rises, and in the meantime a slightly more wary mood has settled on the markets,” said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.
“The Fed is expected to bring in another super-size rate hike of 0.75%, but that has been priced in. Instead it is the words that Powell chooses to use, about the economic outlook and what the future may hold, which are set to be market movers,” said Streeter in a morning note.
Many analysts are warning that equity bulls may have become over optimistic that Powell is about to signal a less hawkish stance, particularly given how sticky inflation remains and how relatively robust the U.S jobs market is.
“Markets have been reacting to dovish expectations for Wednesday’s FOMC, which I have argued are wrong. Based on U.S. economic data out Tuesday (JOLTS, manufacturing PMI), there is no way for the Federal Reserve to turn dovish. The labor market is still strong, and manufacturing is still (slightly) expanding,” said Stephen Innes, managing partner at SPI Asset Management.
“Even if we see the Fed slow the pace of hikes, they are still hiking, the policy is still highly restrictive, front-end rates will still get worse before they get better, and risks of higher terminal rates are still very acute. Sure we could see a knee jerk higher on stocks via a lower Fed glide path, but will it be sustainable?” he added.
Ahead of the Fed decision the market will receive some more economic data, including the ADP employment report for October, due at 8:15 a.m.
Helping support stocks was a well-received earnings report from chipmaker AMD
AMD,
delivered after Tuesday’s closing bell. Companies reporting on Wednesday include Paramount Global
PARAA,
Zillow
Z
and eBay
EBAY.
Meanwhile, over in China, investors continued to bet on rumors that Beijing was considering relaxing its COVID-19 lockdown policy. The Hang Seng China Enterprises index
CN:160462,
which closed on Monday at a 17-year low having fallen about 40% so far in 2022, took its two-day rebound to 8.2%.
