Market Snapshot: U.S. stock futures dip in cautious trade ahead of Fed policy announcement

United States

U.S. stock index futures dipped on Wednesay, after ADP posted stronger-than-expected job growth in the private sector, while traders await the Federal Reserve’s monetary policy decision later in the session.

How are stock-index futures trading
  • S&P 500 futures ES00, -0.14% dropped 3.3 points, or 0.1%, to 3862
  • Dow Jones Industrial Average futures YM00, -0.26% slipped 55 points, or 0.2%, to 32638
  • Nasdaq 100 futures NQ00, +0.01% eased18 points, or 0.2%, to 11318

On Tuesday, the Dow Jones Industrial Average DJIA, -0.24% fell 80 points, or 0.24%, to 32653, the S&P 500 SPX, -0.41% declined 16 points, or 0.41%, to 3856, and the Nasdaq Composite COMP, -3.41% 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

U.S. equity index futures were slightly lower, 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 index down 19.1% for the year to date.

Investors have priced in another 75 basis point rate 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.

In U.S. economic data, the private sector added 239,000 jobs in October, according to payroll services firm ADP. Economists polled by the Wall Street Journal earlier forecasted an increase of 195,000 jobs.

Helping support stocks was a well-received earnings report from chipmaker AMD AMD, -0.67%, delivered after Tuesday’s closing bell. Companies reporting on Wednesday include Paramount Global PARAA, +4.70%, Zillow Z, +0.39% and eBay EBAY, -0.08%.

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 160462, +2.79%, 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%.

Companies in focus
  • Shares of Match Group Inc. MTCH, +1.62% rose 15.7% in premarket trading Wednesday after the online-dating company exceeded revenue expectations for its latest quarter and said that it would “accelerate” cost-control efforts.
  • Caesars Entertainment Inc. CZR, +1.51% shares rose 7.2% Wednesday after management on Tuesday revealed a measure of profit in its digital betting business turned positive last month, giving the business a chance to contribute to profit in the months ahead.