U.S. stock futures hovered near two-week lows on Wednesday as uncertainty over the rajectory of Federal Reserve policy continued to hobble traders’ risk appetite.How are stock-index futures trading
S&P 500 futures
dipped 3 points, or 0.1% to 4126
Dow Jones Industrial Average futures
fell 37 points, or 0.1% to 32864
Nasdaq 100 futures
eased 13 points, or 0.1% to 12883
On Tuesday, the Dow Jones Industrial Average
fell 154 points, or 0.47%, to 32910, the S&P 500
declined 9 points, or 0.22%, to 4129, and the Nasdaq Composite
dropped 0.3 points, or 0%, to 12381. The S&P 500 was up 12.6% from its mid-June low but remains down 13.4% for the year to date.
What’s driving markets Fed fretting was again smothering stock markets on Wednesday. Since hitting a near four-month high on August 16th, the S&P 500 has swiftly retreated 4.1% as investors feared their optimism that the Fed would slow its pace of rate hikes was misplaced. “The reset of expectations has put the skids under what had been something of a recovery rally for the major indices, which remain well short of their opening 2022 levels,” said Richard Hunter, head of markets at Interactive Investor, in a morning note. Comments late on Tuesday from Minneapolis Fed President Neel Kashkari reinforced concerns that the central bank was not minded to pivot to a more dovish trajectory anytime soon, despite signs headline inflation may have peaked and amid a rash of downbeat economic data this week. “The changing narrative among investors is that even if the Fed succeeds in engineering a soft landing for the U.S. economy, rates could remain at elevated levels for longer, and until such time as the battle with inflation has been beaten beyond a doubt,” Hunter added. The shift in Fed policy expectations have pushed up benchmark borrowing costs and helped force the ICE Dollar Index
to fresh 20-year highs — both trends are often deemed damaging to U.S. equity valuations. Record high energy costs in Europe, which have raised fears of a recession in Germany, has also weighed on sentiment.
Still, equity derivative analysts at Bank of America reckon that the recent summer rally in stocks and bonds, which saw the S&P 500
climb 17% off its mid-June trough and the 10-year Treasury yield
fall to 2.5%, has itself encouraged Fed chair Jay Powell and colleagues to be more hawkish. “Giving them [the Fed] room to hike are financial conditions, which by some measures are near as loose as they’ve been during this hiking cycle. This is not new; it’s the “Fed call” dynamic we’ve been writing about all year (the Fed has implicitly sold a call on the market), where looser financial conditions require and allow the Fed to …