Tech companies drove down US stock futures as investors waited for the latest economic outlook from the Federal Reserve and signals for interest rates and bond purchases for the next several years.
The futures linked to the tech-heavy Nasdaq-100 were down 1.3%, while the S&P 500 futures were down 0.4%. The contracts linked to the Dow Jones Industrial Average were relatively flat, suggesting that the indices may be choppy after the market opens. The S&P 500 and the Dow Jones Index has lost lukewarm weight on Tuesday, one day after closing for records.
Federal Reserve officials, due to release their latest economic forecast at 2:00 p.m. ET, likely expect the labor market and inflation to recover faster than expected in December. The central bank is widely expected to reaffirm its commitment to ultra-low interest rates and bond purchases for the time being.
Money managers have already started pricing in spikes in inflation, which has led to a sell-off of government bonds, and are betting that interest rates will rise by the end of next year. They have also started exiting stocks that seem too richly valued after last year’s rally.
“Markets across the board are expensive today and that depends on the support of the central bank,” said Hugh Gimber, strategist at JP Morgan Asset Management. “So this entire market is very, very sensitive to changes in central bank policy.”
A scatter chart of the forecasts made by Fed policymakers could show that some officials are expecting an initial rate hike in 2023, Gimber said. “But the key will be communication: how are you going to offset this modestly better outlook while signaling that the Fed is still there to support the markets?”
In the bond markets, the rate of return is on the Benchmark 10-year US Treasury bill rose from 1.622% on Tuesday to 1.668%. Returns rise when the price falls. The yield has risen sharply from its annual low of 0.915% on January 4th.
Notes and signals from Fed Chairman Jerome Powell This will be central to investors at his press conference, which starts at 2:30 p.m.
“This is about less cautious forecasting, but cautious communication, so Powell is really walking a tightrope,” said Gimber. “Powell will use his comments to prevent overreaction in the bond market.”
Investors have started reshaping their portfolios in the past few weeks as the economic outlook is bolstered by huge sums of government stimulus spending and the introduction of coronavirus vaccinations. This has led to betting on the seedy and economically sensitive sectors of the market while a rally in soaring tech stocks has weakened.
“The markets have basically run as far as they can to anticipate the 2021 recovery. For the most part, the market has seen what it wants to see, ”said Tim Courtney, chief investment officer at Exencial Wealth Advisors. “Everything is based on interest rates right now: we are in an economic recovery and interest rates are normalizing and rising, which will benefit economically sensitive companies.”
fell by over 10% in premarket trading. The company announced on Wednesday that it would post its financial guidance for 2021 after the recent winter storm met his results.
Brent crude, the international benchmark for oil, fell 1.1% to $ 67.62 a barrel.
In the overseas markets, the Stoxx Europe 600 fell 0.5%.
In Asia, most of the major indices had barely changed at close of trading. The South Korean Kospi index fell 0.6% while the Shanghai Composite, Hang Seng and Nikkei 225 indices ended the day largely unchanged.
Write to Will Horner at [email protected]
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