U.S. stock futures on Wednesday were struggling to extend a winning run to a fourth day, as midterm elections looked to deliver the desired gridlock in Washington, nudging bond yields and the dollar lower.
How are stock index futures trading
-
S&P 500 futures
ES00
dipped 8 points, or 0.2%, to 3827 -
Dow Jones Industrial Average futures
YM00
fell 71 points, or 0.2%, to 33104 -
Nasdaq 100 futures
NQ00
eased 12 points, or 0.1%, to 11083
On Tuesday, the Dow Jones Industrial Average
DJIA
rose 334 points, or 1.02%, to 33161, the S&P 500
SPX
increased 21 points, or 0.56%, to 3828, and the Nasdaq Composite
COMP
gained 52 points, or 0.49%, to 10616. The S&P 500 is up 7% from its 2022 closing low hit in mid October, but remains down 19.7% for the year to date.
What’s driving markets
Equity index futures were little changed as the results from the U.S midterm elections continued to trickle in.
The S&P 500 has gained 2.9% over the past three sessions, partly on hopes that gains for the Republicans will deliver partisan gridlock in Washington.
Wall Street expects this will be beneficial for equity valuations since it may reduce regulatory uncertainty, crimp the likelihood of more corporate taxes, and also mean less government spending, which should help undercut inflation.
In turn, softer inflation could, at the margin, reduce the need for the Federal Reserve to hike interest rates aggressively. The S&P 500 is down nearly 20% in 2022 as the Fed has raised borrowing costs from effectively zero at the start of March to a range of 3.75% to 4%.
“What is clear…is that neither major party is running away with the election in a ‘wave’ and it appears that Republicans are still on track to achieve a majority in the House of Representatives, a combo that should put a pin in any new fiscal stimulus for the next few years,” said strategists at Deutsche Bank.
The 2-year U.S Treasury yield
BX:TMUBMUSD02Y,
which is particularly sensitive to monetary policy, was trading around 4.66% on Wednesday, having flirted with 15-year highs near 4.75% at the beginning of the week. The dollar index
DXY
dipped 0.1% to 109.54. Richmond Fed President Tom Barkin is due to speak at 11 a.m. Eastern.
However, for the latest stock rally to continue investors will have to receive a benign consumer prices index report on Thursday.
“October CPI will be very important and consensus is looking for another ‘hot print’ with some seeing year-on-year surging to 9%. This shows that many armchair economists simply draw lines on both growth and acceleration,” said Tom Lee, head of research at Fundstrat, who added that he reckons the inflation number will come in softer than expected.
“All in all, this keeps us constructive on stocks into year end. And we think this rally will rise further and last longer than the 23 trading day rally following June pivot talk,” Lee concluded.
That said, stocks certainly have not been getting a great deal of help from some high profile earnings reports of late. Disney
DIS
was the latest to disappoint, after Tuesday’s closing bell, with the group’s shares off nearly 7% in premarket action.
Markets have also had to contend with a fresh crypto wobble – though this appears to have been swiftly shrugged off with investors reasoning there is little sign of broader contagion. Bitcoin
BTCUSD
was trading below $18,000 as investors digested Binance’s tentative deal to acquire rival FTX.
Still, the sight of fresh selling of many digital tokens – alongside easing bond yields and the softer dollar – seems to have given a lift to gold
GC00
and silver
SI00,
which hit a one-month and five-month high, respectively.
