S&P 500 futures rise as Treasury yields dip, TSMC results support Nasdaq

What’s driving markets

U.S. equities remain in thrall to bonds. The good news for equity bulls on Thursday is that Treasury yields are nudging lower, encouraging index futures to stabilize.

The S&P 500 has endured a choppy start to the year, pulling back from near-record highs as investors pared expectations of interest rate cuts in coming months, forcing implied borrowing costs higher in the process.

The 10-year Treasury yield
BX:TMUBMUSD10Y
by midweek had jumped more than 30 basis points from its December 27 low of 3.8%, after central bank officials pushed back against rate-cut bets, and with its latest surge coming in response to stronger-than-expected U.S. retail sales data.

“The recent very strong correlation between bonds and equities that started bearishly for both in August around the QRA (quarterly refunding announcement) and flipped bullish in October around the QRA, has flipped bearish again in 2024,” said Jim Reid, strategist at Deutsche Bank.

“History tells us the tight correlation won’t last forever, and one will break out from the other, but for now the relationship is lockstep and yesterday was another day where both sold off as investors dialed back the prospect of near-term rate cuts,” Reid added.

Traders are pricing the chances of at least a 25 basis point rate cut by the Federal Reserve at its March meeting at 63%, down from 73.3% a week ago.

“The recent divergence between market expectations for rate cuts and the recent Fed rhetoric is gradually tilting toward the Fed’s stance,” said Stephen Innes, managing partner at SPI Asset Management.

Also helping U.S. futures stabilize on Thursday was a better performance from Asian trading.

Concerns about the health of China’s economy saw Hong Kong’s Hang Seng
HK:HSI
on Wednesday plunge 3.7% to its lowest since October 2022. But the new session saw the index rally 0.75%, with the mainland’s Shanghai Composite
CN:SHCOMP
also recovering some poise with a 0.4% gain.

Further good news came from Taiwan Semiconductor Manufacturing Company
2330,
+1.20%

TSM,
+1.26%,
which produced results that beat analysts forecasts — an outcome that may provide particular support to the tech-rich Nasdaq Composite index later in the U.S.

Meanwhile, the so-far mixed earnings season continues . U.S. companies reporting Thursday include Fastenal
FAST,
-0.61%,
First Horizon
FHN,
-0.23%
and KeyCorp
KEY,
-0.57%
before the opening bell on Wall Street, followed after the close by PPG Industries
PPG,
-0.47%,
J.B. Hunt Transport Services
JBHT,
+0.40%
and First National Bank
FNB,
-0.61%.

U.S. economic updates set for release on Thursday include weekly initial jobless claims, the January Philadelphia Fed manufacturing survey, and housing starts and building permits for December, all at 8:30 a.m. Eastern.

Fed officials making comments include Atlanta Fed President Raphael Bostic speaking on the economic outlook at 7:30 a.m. and again at 11:30 a.m.