Investors are cautiously optimistic as U.S. stock futures edge higher early Thursday, following a recent decline fueled by rising bond yields. The stock market’s reliance on bond performance has caused equity futures to struggle in gaining significant traction.
- S&P 500 futures (ES00) rose 6 points, or 0.1%, to settle at 4426.
- Dow Jones Industrial Average futures (YM00) gained 50 points, or 0.1%, reaching 34871.
- Nasdaq 100 futures (NQ00) increased by 29 points, or 0.2%, closing at 14971.
On Wednesday, major indices experienced a downward trend. The Dow Jones Industrial Average (DJIA) saw a decline of 181 points, or 0.52%, resting at 34766. The S&P 500 (SPX) experienced a drop of 34 points, or 0.76%, finishing at 4404. The Nasdaq Composite (COMP) fell by 156 points, or 1.15%, reaching 13475.
Dominance of Bonds
Government bond yields have regained control over the stock market, leading to cautious trading in equity futures. As bond yields continue to rise, investors struggle to find certainty and confidence in the market.
Impact of Federal Reserve’s Minutes
The recent release of the Federal Reserve’s meeting minutes, indicating a potential increase in borrowing costs to combat inflation, contributed to the decline. These minutes resulted in benchmark government bond yields reaching a 15-year high. The S&P 500 closed on Wednesday at its lowest point in the past six weeks.
Considering the Future
A combination of stronger-than-expected economic data and the Federal Reserve’s comments has prompted investors to reassess their expectations. Many are now questioning whether the market prematurely priced in victory against inflation and whether higher interest rates will remain in effect for longer than anticipated.
Richard Hunter, head of markets at Interactive Investor, shares, “Recent economic data and the Fed’s statements have led some investors to question whether the market’s optimistic stance against inflation came too soon. Additionally, they are considering the possibility of an extended period of higher interest rates.”
Overall, the stock market faces uncertainties as bond yields continue to rise. Investors remain watchful and cautious in these unpredictable times.
Technology Stocks Brace for Higher Interest Rates
The recent wave of selling has left technology stocks, particularly those on the Nasdaq and S&P 500, vulnerable to the impact of higher interest rates. Despite this setback, the overall performance for the year remains strongly positive. The Nasdaq has seen a significant increase of 29%, while the S&P 500 is up by 15%, and the Dow Jones Industrial Average has climbed by 5%.
Cisco Systems (CSCO) may provide some support to the technology sector as its shares surged by more than 2% in premarket trading. The network equipment maker reported impressive quarterly results after the close of trading on Wednesday.
Looking ahead, Walmart’s (WMT) results are anticipated to be the focal point for investors before the markets open.
In terms of economic updates, Thursday will see the release of the weekly initial jobless claims and the August Philadelphia Fed manufacturing survey, both scheduled for 8:30 a.m. Eastern. Additionally, the leading economic indicators report is set to be published at 10 a.m.
Treasury yields play a significant role in the current market landscape and should be closely monitored. The recent push above 4.00% in both TNX and TYX coincided directly with the acceleration of equities moving lower, according to Mark Newton, head of technical strategy at Fundstrat. The TNX and TYX represent the CBOE 10 and 30-year Treasury bond yield indices, respectively.
Furthermore, Newton expects the support target of SPX 4350-4400, which was discussed in late July, to be tested sooner than he originally anticipated. However, he believes that this pullback will ultimately be short-term, leading to a resumption of a rally. Newton speculates that any rally may be further delayed until after the Jackson Hole summit.
The Jackson Hole Economic Symposium, scheduled for August 24th to 26th, holds particular significance as Federal Reserve Chair Jay Powell is expected to deliver a speech during the event.