Stock futures in the United States are indicating that Wall Street will continue its strong rally, fueled by declining bond yields. The recent release of soft inflation data has raised hopes among investors that the Federal Reserve will lower borrowing costs in the coming year.
How Stock-Index Futures are Trading
- S&P 500 futures (ES00) have risen by 11 points, or 0.2%, to 4522.
- Dow Jones Industrial Average futures (YM00) have gained 66 points, or 0.2%, reaching 34954.
- Nasdaq 100 futures (NQ00) have added 55 points, or 0.3%, bringing them to 15935.
On Tuesday, the Dow Jones Industrial Average climbed by 490 points, or 1.43%, closing at 34828. The S&P 500 saw an increase of 84 points, or 1.91%, ending at 4496. Meanwhile, the Nasdaq Composite experienced a gain of 327 points, or 2.37%, settling at 14094.
S&P 500 Continues to Surge
Early futures trading on Wednesday demonstrates that the S&P 500 is building upon its previous day’s surge of 1.9%. This surge marks the highest daily percentage gain since April.
Rally Details and Implications
The rally has not only pushed the Wall Street stock barometer above its 100-day moving average but has also resulted in a monthly gain of 7.2% and a yearly gain of 17.1%. This rally was sparked by a consumer price index report for October, which surprisingly showed flatlined inflation. Additionally, the annual pace of CPI inflation was cooler than expected at 3.2%.
As a result, investors have grown optimistic that the Federal Reserve has concluded its cycle of interest rate hikes and is now more likely to reduce rates in the upcoming year. Market indicators are currently forecasting a 47% chance of a 25 basis point rate cut, bringing the range to 5.00 to 5.25%, in May. This probability has risen from 32% in the previous month.
Borrowing costs have significantly decreased, with the 10-year Treasury yield dropping nearly 60 basis points from last month’s 16-year high of just above 5%.
This rally has notably revitalized rate-sensitive sectors of the equity market. The Russell 2000 index, comprised of smaller companies, experienced a significant gain of 5.4% on Tuesday, its largest increase in over a year.
Market Sentiment Remains Positive with High Expectations for Interest Rate Cuts
The market is buzzing with anticipation as more bets are being placed on potential interest rate cuts in the upcoming Spring. This upbeat sentiment is expected to provide a tailwind to trading on Wall Street, according to Susannah Streeter, the head of money and markets at Hargreaves Lansdown.
Amidst this excitement, some observers are cautioning that the current market ebullience might be a bit excessive. JPMorgan CEO, Jamie Dimon, expressed his views on Bloomberg TV, stating that the public is overreacting to short-term numbers. He also expressed concerns about the lingering presence of inflation, suggesting that while the Federal Reserve made the right decision to halt rate hikes temporarily, they might need to take further action.
The market’s optimism will face a fresh challenge when the October producer prices report is released at 8:30 a.m. on Wednesday. Traders are hoping that pipeline inflation shows signs of easing and that retail sales numbers, also released at the same time, indicate that consumers have not been significantly affected by the Fed’s rate increase campaign.
In addition, at 8:30 a.m., the November Empire State manufacturing survey will be published, followed by the September business inventories report at 10 a.m. Testimonies from Fed Vice Chair for Supervision Michael Barr before the House Financial Services Committee at 9:30 a.m., and a speech by Richmond Fed President Tom Barkin at 3:30 p.m., will further contribute to the day’s economic updates.
Notably, market sentiment was reinforced by positive news from China. Recent data revealed that consumer and industrial activity in the world’s second-biggest economy grew faster than expected last month. Moreover, reports of Beijing planning a significant 1 trillion yuan ($137 billion) support package for the property sector have also fueled investor confidence.
The day’s roster of corporate results includes Target (TGT) and TJX (TJX) before the NYSE opening bell, followed by Palo Alto Networks (PANW) and Cisco Systems (CSCO) after the market closes. The outcomes of these reports are highly anticipated by market participants.