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U.S. stock-index futures Wednesday were trading mostly lower ahead of a key policy update from the Federal Reserve set for later in the afternoon, which will be parsed for clues about the economic outlook and the sustainability of the recent runup in equities in the aftermath of the COVID-19 pandemic.
How are benchmarks performing?
Futures for the Dow Jones Industrial Average YMM20, -0.09% YM00, -0.09% were off 40 points, or 0.2%, at 27,224; those for the S&P 500 index ESM20, +0.03% ESM20, +0.03% were trading virtually unchanged at 3,205.75; while Nasdaq-100 futures NQM20, +0.29% NQ00, +0.29% were trading 28.25 points, or 0.3%, higher at 9,979.25.
On Tuesday, the Dow DJIA, -1.08% shed 300.14 points, or 1.1%, to end at 27,272.30, snapping its longest win streak, six days, since the eight-session stretch ended Sept. 13, 2019. The S&P 500 index SPX, -0.78% fell 25.21 points, or 0.8%, closing at 3,207.18. The Nasdaq Composite Index COMP, +0.29% advanced 29.01 points, or 0.3%, finishing at a record 9,953.75, after briefly touching an all-time intraday high of 10,002.50.
What’s driving the market?
Investors will be eagerly awaiting the most recent policy update and a virtual news conference from the rate-setting Federal Open Market Committee led by Chairman Jerome Powell.
Although the central bank isn’t expected to make any significant changes to rates or its current batch of program, investors will be keenly attuned to how Powell communicates the economic outlook and the Fed’s willingness to provide substantial aide to the coronavirus-stricken economy, particularly after Friday’s jobs report showed that 2.5 million jobs were created in May rather than an expectation for millions in jobs lost in the month; and the unemployment rate fell to 13.3% from 14.7% in April.
The Fed’s balance sheet has ballooned from about $4 trillion in March to $7.21 trillion as of last week to support financial markets, with interest rates steady at a range of 0% and 0.25%.
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Those efforts have been widely credited with helping support the current rally in markets that helped the Nasdaq Composite notch a second straight record close and the broader market erase much of the rout in stocks brought on by the emergence of the deadly epidemic and the efforts to limit its spread.
Tuesday’s pullback for the broader market, however, reflects some concerns that the trend higher in markets has gotten ahead of the fundamentals of the economy, even as states and cities restart business activity as lockdown protocols are eased.
“Without stating the obvious, Wednesday’s FOMC decision will determine whether the pause extends a little longer or not,” wrote Stephen Innes, global chief market strategist at AxiCorp, in a daily research note. “If the Fed does not take any further action, risk sentiment might cool its jets for longer,” he said.
The Fed policy statement and a projection of interest rate expectations from FOMC members will be released at 2 p.m. and will be followed by a news conference featuring Powell a half-hour later.
Markets have been edging lower of late as investors watch for signs from the Fed but concerns about the possibility of a second wave of the viral epidemic also has fostered some anxiety in markets, driving bond yields lower. The Organization for Economic Cooperation and Development said it expected the global economy to contract by 6% this year even if a second wave of infections and is avoided, while its forecasts a contraction of 7.6% in the face of a resurgence of the novel coronavirus.
In addition to the Fed, the market will be watching for a reading on inflation for May, with the consumer-price index, a measure of the price of a basket goods and services, due at 8:30 a.m. Eastern Time. The median estimates from economists surveyed by Econoday is for a month-over-month reading of 0%, and a year-over-year change of 0.2%, with core monthly and annual readings, minus volatile food and energy prices, at 0.1% and 1.3%, respectively.
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Which stocks are in focus?
- MGM Resorts International MGM, -7.14% said that it is reopening more resorts in Las Vegas over the next few weeks.
- Best Buy Co. Inc. BBY, -2.47% said late Tuesday that starting next Monday it will allow a “limited” number of people inside most of its stores, without the need for an appointment.
- Shares of Verint Systems Inc. VRNT, -0.08% were in focus after the data analytics company late Tuesday reported lower-than-expected adjusted fiscal first-quarter profits, and the quarter’s sales were also a miss.
- Merck Inc. MRK, -0.77% said late Tuesday that its drug Keytruda did not reach its goals in a late-stage clinical study for the treatment of bladder cancer.
- Shares of GameStop Corp. GME, -0.99% were under pressure after the retailer of multichannel video game, consumer electronics, and wireless services late Tuesday reported fiscal first-quarter results battered by the coronavirus pandemic.
- Chewy Inc.‘s stock CHWY, +5.61% was in focus after the online pet-products retailer’s results and outlook topped Wall Street estimates.
How are other assets trading?
Oil prices traded lower Wednesday morning CLN20, -2.59%. West Texas Intermediate declined $1.09, or 2.8%, to trade at $37.85 a barrel on the New York Mercantile Exchange.
In precious metals, August gold GCM20, +0.31% on Comex edged up $2.80, or 0.2%, to reach $1,724.70 an ounce.
The 10-year Treasury note yield TMUBMUSD10Y, 0.795% fell 3.1 basis points to 0.80%. Bond prices move in the opposite direction of yields.
The greenback edged 0.2% lower against its major rivals, as gauged by the ICE U.S. Dollar index DXY, -0.18%.
In global equities, the Stoxx Europe 600 index SXXP, -0.38% traded 0.4% lower and the FTSE 100 index UKX, -0.31% fell 0.3%.
In Asia, Japan’s Nikkei NIK, +0.14% closed 0.2% higher, the China CSI 300 000300, -0.18% finished up 0.2% and Hong Kong’s Hang Seng Index HSI, -0.03% closed in negative territory but virtually unchanged. South Korea’s Kospi index 180721, +0.30% gained 0.3%.
