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U.S. stock futures were firmer, leaving the S&P 500 on course for its highest open in 14 months, as traders awaited confirmation that the Federal Reserve’s rate-hiking campaign was on hold.
How are stock-index futures trading
-
S&P 500 futures
ES00,
+0.17%
rose 7 points, or 0.2% to 4424 -
Dow Jones Industrial Average futures
YM00,
-0.09%
fell 34 points, or 0.1% to 34497 -
Nasdaq 100 futures
NQ00,
+0.19%
gained 35 points, or 0.2% to 15134
On Tuesday, the Dow Jones Industrial Average
DJIA,
rose 146 points, or 0.43%, to 34212, the S&P 500
SPX,
increased 30 points, or 0.69%, to 4369, and the Nasdaq Composite
COMP,
gained 111 points, or 0.83%, to 13573.
What’s driving markets
The main focus for Wednesday is the Federal Reserve’s monetary policy decision, due at 2 p.m. eastern — followed half an hour later by the start of Fed Chair Jay Powell’s press conference.
Markets see a 90% probability that the Fed will leave interest rates unchanged at a range of 5% to 5.25% — the opportunity to pause its hiking cycle provided by Tuesday’s news that consumer price inflation last month hit a two-year low of 4%.
Consequently, it is the text of the Fed’s accompanying statement and Powell’s subsequent comments that are more likely to drive trading later in the session.
That could pose a problem for stocks given their recent surge to fresh 52 week highs leaves them potentially vulnerable to disappointment.
The S&P 500’s relative strength index, a momentum gauge, closed Tuesday at 72, and the RSI of the Nasdaq 100 — the index replete with ebullient big tech stocks — was 75, both above the 70 threshold that marks overbought territory.
Furthermore, the CBOE VIX index
VIX,
a measure of expected S&P 500 volatility that tends to spike when equities fall swiftly, was trading around 14.6, close to recent three-year lows.
Such signs of investor optimism may clash with the market’s recent poor record around Fed announcements, noted Bespoke Investment Group.
“U.S. equities have really struggled on Fed days recently. In fact, the S&P [S&P 500] has averaged a one-day decline of more than 1% across the last six Fed days, and…those declines have primarily come in the final hour of trading following Fed Chair Powell’s press conferences,” said Bespoke in a note.
Source: Bespoke Investment Group.
Even normally bullish analysts were alert to the possibility of stocks dipping in the short term, particularly if Powell was seen stressing that a rate-hike pause did not necessarily mean borrowing costs had peaked for this cycle.
“There is a risk this is a ‘hawkish’ pause as the Fed could be troubled by the 15% rally in equities year to date. This is a possibility,” said Tom Lee, head of research at Fundstrat.
However, he added that if there was say a 5% pull back in stocks he would “absolutely” be a buyer, noting that many fund managers remain underweight equities according to a recent Bank of America survey.
U.S. economic updates set for release on Wednesday include the producer price index data for May, due at 8:30 a.m.
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