Market Snapshot: Dow futures threaten to snap 6-day winning streak

What’s driving markets

The latest equity market rally was showing signs of losing some steam early Tuesday.

Traders were adopting a more cautious tone after last week’s plunge in bond yields, on hopes the Federal Reserve was now finished raising interest rates, sparked a 6% jump for the S&P 500 in just six sessions.

Implied borrowing costs have been the primary driver of U.S. stocks of late. The 10-year Treasury yield
BX:TMUBMUSD10Y,
which hit a 16-year high above 5% late last month, but then briefly fell below 4.5% on Friday after cooling jobs data, is trading back around 4.61%.

The markets are building in four rate cuts next year, the first of which has been pushed forward to the May/June time period, said Kent Engelke, chief economic strategist at Capitol Securities Management.

“Numerous Fed officials — including FRB Chair Powell — are slated to speak in the next few days. It is generally assumed these speakers, may ‘push back’ on this emerging narrative that the Fed is done, and the first-rate cut will occur in June,” he said, in a note.

This chimed with comments late Monday from Minneapolis Fed President Neel Kashkari, who said Fed officials have not discussed what it would take to cut interest rates.

Investors were right to be wary about expressing overconfidence that the Fed would soon pivot to a more dovish stance, according to Jim Reid, strategist at Deutsche Bank.

“[T]his is at least the 7th time this cycle where markets have reacted notably in response to dovish speculation. Clearly rates aren’t going to keep going up forever, but on the previous six occasions we saw hopes for near-term rate cuts dashed every time,” said Reid.

Indeed, news from Down Under, where the Reserve Bank of Australia on Tuesday raised interest rates again amid sticky inflation, was highlighting such concerns.

“The RBA hike came as a sour reminder that there is no rule that says that a bank can’t hike rates after pausing for four meetings,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

The September U.S. trade deficit rose 4.9% to $61.5 billion. Consumer credit data for September is due at 3 p.m. Eastern time.

A number of Fed officials are due to speak throughout the day, including Vice Chair for Supervision Michael Barr discussing fintech at 9:15 a.m., Governor Christopher Waller talking about the value of economic data at 11 a.m., and New York Fed President John Williams addressing the Economic Club of New York at noon.

Companies in focus

• Uber Technologies Inc.
  UBER,
  +0.82%
  topped earnings expectations but came shy of forecasts with its third-quarter revenue. Shares were down 0.8% in premarket trade.

• Shares of Datadog Inc.
  DDOG,
  -3.04%
  jumped more than 20% after an upbeat earnings forecast. Shares of MongoDB Inc.
  MDB,
  -3.14%
  and Elastic NV
  ESTC,
  -1.49%
  were also rallying as the results eased fears about consumption-based software companies for the latest quarter.

• D.R. Horton Inc.
  DHI,
  -0.96%
  shares rose after the home builder’s fiscal fourth-quarter results beat Wall Street analyst estimates for profit and revenue.