U.S. stock futures rise slightly amid cautious trading

What’s driving markets

With just three sessions left in 2022, traders were looking to greet Wall Street’s opening bell cautiously, with equity index futures rising slightly.

Failed rallies are an established feature of bear markets and investors remain wary of applying overly bullish bets as the year draws to a close, especially given the holiday-thinned trading.

“While I appreciate the natural instinct to ‘buy the dip’ in growth now that the year has ended, the simple truth is that the macroeconomic conditions that resulted in growth underperformance in 2022 are still in place,” cautioned Tom Essaye, founder and president of The Sevens Report, in a note Wednesday. “Rates are not falling quickly, are a long way from ‘low” and aren’t getting there anytime soon.”

Indeed, there are few fresh catalysts on Wednesday to distract investors from the underlying theme that has driven markets for much of the year: multi-decade high inflation and how the central banks’ attempts to quash it will hurt the global economy and crimp company earnings.

The Federal Reserve has raised interest rates by 425 basis points since March, and the S&P 500 consequently is down 19.7% for the year through Tuesday. Growth and technology stocks have been particularly hard hit in 2022, with the Nasdaq Composite tumbling 33.8% over the same period.

“Concerns over the well-entrenched 2022 wall of worry list, including Federal Reserve policy, inflation, economic growth, and the prospect of a recession in 2023, are dominating investors’ psyches during the final trading days of the year,” said Stephen Innes, managing partner at SPI Asset Management.

“Investors hoping for a year-end rally are likely disappointed as holiday cheer seems in short supply,” Innes added.

One development of note this week was news that China was further relaxing its COVID-19 restrictions. It’s a strategy deemed positive for the global economy but investors have focused on the inflationary potential of Beijing’s move.

“If the Chinese reopening story is positive for oil and commodity prices – and for the massively battered Chinese stocks, it’s bad news for global inflation,” wrote Ipek Ozkardeskaya, senior analyst at Swissquote Bank, in a morning note.

“This is why we don’t see the U.S. stocks gaining on China reopening news…as the surge in Chinese demand will certainly boost inflation through higher energy and commodity prices. And in response to higher inflation, the central banks will continue hiking rates.” Ozkardeskaya added.

U.S. economic updates set for release on Wednesday include the November pending home sales index due at 10 a.m. Eastern.

Companies in focus

• Southwest Airlines
  LUV,
  -2.25%
  fell in premarket trade as it continues to cancel flights and tries to return to a normal schedule. Southwest has canceled thousands of flights over the past week, following a severe winter storm, and is limiting bookings over the next few days.

• Tesla
  TSLA,
  +5.26%
  was up in premarket trading after shares of the electric-vehicle company tumbled 11.4% in the previous session and closed with a market cap of $344.5 billion, ranking it as the 16th-largest U.S. company. Tesla had ranked 10th on Friday.

•  AMC Entertainment 
  AMC,
  -0.87%
  was down in premarket trading after CEO Adam Aron asked the movie theater chain’s board to freeze his salary and urged other top AMC executives to do the same.