How stock-index futures are trading
- S&P 500 futures (ES00) fell 12 points, or 0.3%, to 4490
- Dow Jones Industrial Average futures (YM00) lost 59 points, or 0.2%, to 34621
- Nasdaq 100 futures (NQ00) eased 57 points, or 0.4%, to 15478
Previous Day’s Performance
On Tuesday, the Dow Jones Industrial Average (DJIA) fell 196 points, or 0.56%, to 34642, the S&P 500 (SPX) declined 19 points, or 0.42%, to 4497, and the Nasdaq Composite (COMP) dropped 11 points, or 0.08%, to 14021.
Market Sentiment
Risk appetite was subdued on Wednesday as benchmark Treasury yields hovered just below recent multi-year highs, and oil prices remained near their highest levels of 2023.
“The downbeat mood on the markets is continuing, with little to lift sentiment in sight, as oil prices stay elevated and inflationary fears are pushed back up,” said Susannah Streeter, head of money and markets at Hargreaves Lansdown.
Rise in Oil Prices
The price of Brent crude (BRN00) on Tuesday rose above $90 a barrel for the first time since November after Saudi Arabia and Russia announced extended production cuts until the end of the year. Brent dipped to $89.60 early Wednesday.
Concerns about Inflationary Pressures
The increase in energy prices has raised concerns that inflationary pressures will resume, leading central banks to maintain higher borrowing costs for a longer period of time. The 10-year Treasury yield, which briefly fell below 4.10% last Friday, stood at 4.27% early Wednesday, just 10 basis points below the 16-year peak reached in September.
Oil Bulls Celebrate, But Challenges Await
The recent surge in oil prices has left many investors ecstatic. However, experts warn that this notable price increase could pose challenges for central banks and financial markets, which have been struggling with lower inflation rates. Stephen Innes, managing partner at SPI Asset Management, explains, “If bonds are selling off mainly due to higher inflation expectations, that truly will be bad news for markets.”
Investors Await Federal Reserve Minutes
With the interest rate trajectory in mind, investors are eagerly anticipating the release of the minutes from the Federal Reserve’s July rate-setting meeting. Scheduled for 2 p.m. Eastern, this release will provide valuable insights for market participants.
Today’s Economic Updates
Several important U.S. economic updates are set to be released today. These include the trade deficit for July, which is due at 8:30 a.m. Additionally, the final reading of the S&P U.S. services PMI for August will be released at 9:45 a.m., followed by the ISM services report for August at 10 a.m.
Bond Yields Could Exert Selling Pressure on Stocks
Mark Newton, head of technical strategy at Fundstrat, suggests that the rise in bond yields may lead to short-term selling pressure on U.S. stocks. He acknowledges that Tuesday’s market performance would have been even worse if not for the resilience of technology shares.
Key Support Levels to Watch
Newton points out that the key support level for the S&P 500 lies at 4458, near a 38.2% Fibonacci retracement of the rally from mid-August. If this level is breached, additional support can be found at 4439. However, a break of 4415 may result in a more significant period of weakness and a retest of August lows.
Outlook for September
Despite the recent drop in the market, Newton does not anticipate a severe decline in September. He expects any further dips to find support into mid-month before rallying back. However, he notes that Tuesday’s close at multi-day lows suggests a potential further decline this week before finding support and reversing course.