U.S. stock futures exhibited slight gains on Monday, although traders remained cautious as bond yields rose and the market looked ahead to the Federal Reserve’s upcoming comments, scheduled for Wednesday.
Stock-Index Futures Performance
- S&P 500 futures (ES00) rose 6 points, or 0.1%, reaching 4504.
- Dow Jones Industrial Average futures (YM00) increased by 41 points, or 0.1%, reaching 34968.
- Nasdaq 100 futures (NQ00) gained 25 points, or 0.2%, reaching 15417.
On Friday, the Dow Jones Industrial Average fell by 289 points, or 0.83%, closing at 34618. Similarly, the S&P 500 declined by 55 points, or 1.22%, closing at 4450, while the Nasdaq Composite dropped by 218 points, or 1.56%, closing at 13708.
Difficulty in Bouncing Back
Stocks struggled to recover from a recent sharp sell-off due to benchmark bond yields nearing a 16-year high. Additionally, investors had their eyes on an eventful week of central bank actions.
The S&P 500 faced a 1.2% drop on Friday following the release of stronger-than-expected economic data and the rise in oil prices, sparking concerns about inflation potentially hovering above the Federal Reserve’s targeted rate of 2%.
Furthermore, treasuries reflected these concerns as the implied borrowing costs for 10-year Treasury bonds (BX:TMUBMUSD10Y) climbed to 4.353%, slightly below their peak since 2007. U.S. crude futures (CL.1) traded above $91 a barrel, marking the highest price since November of last year.
According to Stephen Innes, managing partner at SPI Asset Management, “Investors are increasingly concerned that the latest flurry of data points to firming inflation and perhaps a higher-for-longer rate environment that could weigh on the heavily Mega CAP Tech concentrated S&P 500 Index.”
Central Banks’ Views Awaited
Central banks across the globe are set to reveal their policy decisions this week, shedding light on how they perceive recent developments. On Wednesday, the Federal Reserve will make its announcement, followed by the Bank of England on Thursday and the Bank of Japan on Friday.
Although a no-change decision is widely anticipated from the Fed, market participants are eagerly waiting for insights into its current thinking. Richard Hunter, head of markets at Interactive Investor, emphasizes the significance of accompanying comments. According to him, these remarks could have a significant impact on the market, particularly since investors’ opinions on the future outlook are currently divided.
The recent rise of the dollar (DXY) has also been dampening sentiment. Jonathan Krinsky, the technical strategist at BTIG, points out that the strength of the dollar, along with rising interest rates and crude oil prices, has been a major challenge across various asset classes. However, last week, equities seemed to acknowledge this headwind only on Friday.
Krinsky warns that the S&P 500 (SPX) is now showing signs of breaking down from a bear flag pattern and threatening its one-year uptrend. This comes at a less than favorable time, seasonally speaking. The week ahead has historically been volatile, with 26 of the last 33 years witnessing a downturn during this time period. Therefore, Krinsky predicts an expansion in volatility during this historically rough period.
In terms of economic updates from the U.S., Monday will see the release of the September home builder confidence index at 10 a.m. Eastern Time.