U.S. stock index futures were mixed Wednesday after edging higher overnight, leaving the S&P 500 on course for its highest open in 14 months, as traders awaited confirmation that the Federal Reserve’s interest rate-hiking campaign was on hold.
How are stock-index futures trading
- S&P 500 futures ES00, +0.07% rose 4 points, or 0.1% to 4420
- Dow Jones Industrial Average futures YM00, -0.22% fell 86 points, or 0.3% to 34448
- Nasdaq 100 futures NQ00, -0.04% gained 13 points, or 0.1% to 15112
On Tuesday, the Dow Jones Industrial Average DJIA, +0.43% rose 146 points, or 0.43%, to 34212, the S&P 500 SPX, +0.69% increased 30 points, or 0.69%, to 4369, and the Nasdaq Composite COMP, -8.94% gained 111 points, or 0.83%, to 13573.
What’s driving markets
Investors were encouraged by U.S. wholesale price index data showing a fall of 0.3% in May, the third drop in the past four months, potentially heralding a further slowdown in inflation later in the year. Economists polled by the Wall Street Journal had forecast a 0.1% decline in the producer price index.
A separate measure of wholesale prices that strips out volatile food and energy costs was flat last month, the government said. The increase in these so-called core prices over the past year decelerated to 2.8% from 3.3%, marking the smallest increase since February 2021.
Still, the main focus for Wednesday is the Federal Reserve’s monetary policy decision, due at 2 p.m. eastern, followed half an hour later by Fed Chair Jay Powell’s press conference.
Markets see a 90% probability that the Fed will leave its policy interest rate unchanged at a range of 5% to 5.25% and pause its rate hiking cycle after Tuesday’s news that consumer price inflation last month hit a two-year low of 4%.
Consequently, it is the text of the Fed’s accompanying statement and Powell’s subsequent comments that are more likely to drive trading later in the session.
That could pose a problem for stocks given their recent surge to fresh 52 week highs leaves them potentially vulnerable to disappointment.
The S&P 500’s relative strength index, a momentum gauge, closed Tuesday at 72, and the RSI of the tech-heavy Nasdaq 100 was 75, both above the 70 threshold that marks overbought territory.
Furthermore, the CBOE VIX index VIX, +0.34%, a measure of expected S&P 500 volatility that tends to spike when equities fall swiftly, was trading around 14.6, close to recent three-year lows.
Such signs of investor optimism may clash with the market’s recent poor record around Fed announcements, noted Bespoke Investment Group.
“U.S. equities have really struggled on Fed days recently. In fact, the S&P [S&P 500] has averaged a one-day decline of more than 1% across the last six Fed days, and…those declines have primarily come in the final hour of trading following Fed Chair Powell’s press conferences,” said Bespoke in a note.
Source: Bespoke Investment Group.
Even normally bullish analysts were alert to the possibility of stocks dipping in the short term, particularly if Powell was seen stressing that a rate-hike pause did not necessarily mean borrowing costs had peaked for this cycle.
“There is a risk this is a ‘hawkish’ pause as the Fed could be troubled by the 15% rally in equities year to date. This is a possibility,” said Tom Lee, head of research at Fundstrat.
However, he added that if there was say a 5% pull back in stocks he would “absolutely” be a buyer, noting that many fund managers remain underweight equities according to a recent Bank of America survey.
Companies in focus
- Tesla Inc. TSLA, +3.55% rose 1.4% in premarket trading after ending Tuesday’s session at their best since late September and extending their winning streak to a 13th session. Tesla also raised U.S. prices for its Model Y crossover by $ 250 late Tuesday.
- Nvidia Inc.‘s stock NVDA, +3.90% dipped 0.5% after the chip giant became the seventh public U.S. company to close a trading session with a market cap above $ 1 trillion.
- UnitedHealth Group Inc. UNH, -0.26% stock fell 5.6% after executives told a Goldman Sachs investor conference on Tuesday that seniors had begun to catch up on pandemic-delayed surgeries for hips and knees, meaning rising costs for health insurers. Shares of Humana Inc. HUM, -0.12% fell 7.5% and Cigna Group CI, +1.97% declined 4.3%.