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U.S. stock futures strived to trim some of September’s losses early Wednesday as Treasury yields pulled back from cycle highs.
How are stock-index futures trading
-
S&P 500 futures
ES00,
+0.28%
rose 19 points, or 0.4% to 4334 -
Dow Jones Industrial Average futures
YM00,
+0.22%
gained 120 points, or 0.4% to 33995 -
Nasdaq 100 futures
NQ00,
+0.25%
added 69 points, or 0.5% to 14784
On Tuesday, the Dow Jones Industrial Average
DJIA
fell 388 points, or 1.14%, to 33619, the S&P 500
SPX
declined 64 points, or 1.47%, to 4274, and the Nasdaq Composite
COMP
dropped 208 points, or 1.57%, to 13064.
What’s driving markets
The S&P 500 is down 5.2% so far in September. During that time the yield on 10-year Treasurys
BX:TMUBMUSD10Y
jumped 48 basis points, hitting on Tuesday its highest since October 2007 as traders bet that the Federal Reserve is likely to raise interest rates again in order to push inflation back to its 2% target.
“Investors continue to grapple with the implications of an extended period of elevated interest rates and the potential economic repercussions, and they seem to favor the cut-run maneuver this week,” said Stephen Innes, managing partner at SPI Asset Management.
“Heightened investor anxiety due to the looming possibility of a partial U.S. government shutdown is not helping matters,” Innes added.
However, a dip in Treasury yields early Wednesday is coinciding with a pick up in stock-index futures as some investors sense the market’s latest retreat is overdone.
The CBOE VIX index
VIX,
Wall Street’s so-called fear gauge, hit a four-month high above 19 on Tuesday. And the S&P 500’s (SPX) 14-day relative strength index, a closely watched momentum gauge, finished Tuesday’s session at 30.3, a fraction above the threshold of ‘oversold’ territory, and its lowest level of the year.
That’s actually good news for market bulls, said Mark Newton, head of technical strategy at Fundstrat, who thinks the latest sell-off remains within the boundaries of a longer-run rally.
“[T]his remains part of a larger uptrend from last October’s lows that has not been broken in SPX. In my opinion, one can continue to label recent volatility as short-term weakness within an ongoing uptrend,” said Newton.
Still, the prospect of interest rates staying higher for longer has been punishing for shares of smaller companies, which are especially sensitive to increased borrowing costs.
The average stock in the small-cap Russell 2000
RUT
is now 33% below its 52-week high, according to Bespoke Investment Group.
Source: Bespoke Investment Group
“September’s end can’t come soon enough based on the action we’re seeing in stocks this week. It’s a bloodbath in small-caps. At the end of July, the Russell 2,000 was up just under 14% YTD. Now it’s up just 0.3%.,” said Bespoke.
U.S. economic updates set for release on Wednesday include August durable goods orders, due at 8:30 a.m. Eastern.
