U.S. stock benchmarks were attempting to recover Wednesday, following the worst selloff for the S&P 500 index in roughly four months this week, as surging bond yields spooked investors following last week’s confirmation from the Federal Reserve that it will soon begin winding down its easy-money policies as the economy recovers.
How are stock-market futures trading?
- The Dow Jones Industrial Average rose 0.4% to 34,429, a gain of about 130 points.
- The S&P 500 gained 0.5% to 4,372, picking up 20 points.
- The Nasdaq Composite Index advanced 77 points, or 0.5%, to roughly 14,624.
On Tuesday, the Dow fell 569 points, or 1.63%, to 34,300 and the S&P 500 declined 90 points, or 2.04%, to 4353, its worst daily percentage drop since May 12, according to Dow Jones Market Data. The Nasdaq Composite dropped 423 points, or 2.83%, to 14547.
What’s driving the market?
Wednesday’s rise in stock indexes came as the surge in U.S. Treasury yields eased off, though the yield on the 10-year Treasury remained near the highest levels since June.
Yields began their ascent last week, following a Federal Reserve meeting that indicated the central bank was ready to begin backing away from its accommodative policy put in place to help the economy cope with the pandemic.
Surging yields pushed investors to press the sell button, notably on interest rate sensitive technology and other growth-related names, though companies geared to the economic cycle also saw losses. Federal Reserve Chairman Jerome Powell said Tuesday that some of the supply-side bottlenecks behind the surge in inflation have “gotten worse.”
However, some investors and analysts hold with the Fed’s view that increasing pricing pressures will remain short-lived or be fairly muted.
“We expect underlying inflation in the US to be significantly higher over the next decade on average than it has been over the last one,” wrote John Higgins, chief markets economist at Capital Ecoomics in a Wednesday research note. “Nonetheless, we don’t think that it will climb sharply from here, or that it will coincide with much weaker economic growth or tighter monetary policy,” the economists wrote.
“So, in our view, markets will not falter in the way that they did during some periods of high inflation in the past,” he said.
While investors looked ready to buy some beaten-down equities on Wednesday, they remain wary as Democrats and Republicans are deadlocked over a funding package needed to prevent a government shutdown.
In an update sent to Congressional leaders on Tuesday, U.S. Treasury Secretary Janet Yellen said Congress must raise or suspend the debt limit by Oct. 18.
However, Senate Democrats are likely to seek a vote Wednesday on a stopgap funding bill to avert a government shutdown, but without a provision to increase the federal debt limit. The bill would extend funding through Dec. 3.
Democrats in the House remain divided over the progress of the bipartisan infrastructure bill passed earlier by the Senate and the larger tax and social spending package that encompasses much of Joe Biden’s economic agenda.
“Investors are also troubled by the fact that we have arrived at this point where
Washington lawmakers are responsible for important financial and economic
outcomes when they have been challenged to find common ground on any issue over the last number of years,” said Alex Chaloff, co-head of investment strategies at Bernstein Private Wealth Management
“While the debt ceiling negotiation will likely reach a resolution, we all have to be prepared for it to go to the 11th hour and be extremely messy along the way. Investors like certainty. Investors like resolution. Today, this issue has neither,” said Chaloff, in emailed comments.
Wednesday will be busy on the central bank front, with Powell appearing at a European Central Bank conference panel at around 11:45 a.m. ET, alongside Christine Lagarde, president of the ECB, Bank of Japan Gov. Haruhiko Kuroda and Bank of England Gov. Andrew Bailey.
On the data front, pending home sales rose 8.1% in August, compared with July, the National Association of Realtors reported Wednesday, far exceeding expectations. Economists polled by MarketWatch had projected a 0.4% increase for pending home sales in August.
Which companies are in focus?
- Shares of Micron Technology Inc. fell 0.4% after a disappointing earnings forecast from the chip maker late Tuesday.
- Shares of Lucid Group Inc. rose over 12% after the electric-vehicle maker on Tuesday showed off its first cars said it would deliver them to customers starting late next month.
- Warby Parker Inc. received a reference price of $40 a share by the New York Stock Exchange for its direct listing, valuing the eyewear maker at nearly $5 billion.
How are other assets trading?
- The 10-year Treasury note was yielding 1.504%, versus 1.534% at 3 p.m. Eastern Time on Tuesday.
- The ICE U.S. Dollar Index DXY, a measure of the currency against a basket of six major rivals, was up 0.3%.
- Oil futures pulled back from an earlier jump, with the U.S. benchmark CL00 trading 0.6% lower at $74.84 a barrel. Gold futures GC00 edged up less than 0.1% to reach $1,738.70 an ounce.
- Oil futures continued to pull back after the first loss in six sessions on Tuesday. with the U.S. benchmark down around 0.5% to $74.93 a barrel.
- In European equites, the Stoxx Europe 600 index was trading 0.7%, following the biggest percentage decline since July 19. Asian equities were mostly lower across the board, with the Nikkei 225 index dropping 2.1% and China’s CSI 300 index closed 1% lower and the Shanghai Composite Index ended 1.8% lower.