Fed Focus: U.S. Stock Futures Up as Powell Prepares to Speak

U.S. stock futures are on a modest uptick as traders eagerly await the Federal Reserve’s decision and Chairman Powell’s remarks. In the meantime, oil prices have pulled back from their recent 10-month highs, and Treasury yields have eased from multi-year peaks.

Current State of Stock Futures:

• S&P 500 futures (ES00) have nudged up by 10 points or 0.2%, reaching 4,500.
• Dow Jones Industrial Average futures (YM00) have risen by 101 points or 0.3%, climbing to 34,918.
• Nasdaq 100 futures (NQ00) are showing a gain of 29 points or 0.2%, reaching 15,406.

Market Performance from Tuesday:

• The Dow Jones Industrial Average (DJIA) experienced a decline of 107 points, equivalent to 0.31%, closing at 34,518.
• The S&P 500 (SPX) saw a drop of 10 points or 0.22%, closing at 4,444.
• The Nasdaq Composite (COMP) retreated by 32 points or 0.23%, settling at 13,678.

Market Outlook:

U.S. markets are exhibiting a subdued tone as traders brace themselves ahead of the Federal Open Market Committee’s policy decision, slated for 2 p.m. Eastern time. This year, the S&P 500 has made significant gains, partly fueled by expectations that the Fed’s monetary tightening will conclude without causing significant harm to the economy.

Tom Lee, Head of Research at Fundstrat Global Advisors, highlights that “Investors are naturally apprehensive that Wednesday’s FOMC press conference could trigger higher interest rates and a consequent sell-off in stocks.”

Traders are currently pricing in a 99% likelihood that the Federal Reserve will maintain rates within the 5.25%-5.50% range, according to the CME FedWatch Tool. Nevertheless, there’s a 29% chance of a 25-basis-point rate hike to a range of 5.50%-5.75% at the subsequent meeting in November.

Recent robust U.S. economic data and this week’s surge in oil prices have raised concerns about lingering inflationary pressures, potentially necessitating the central bank to maintain elevated borrowing costs.

Thierry Wizman, global FX and interest rates strategist at Macquarie, suggests that the surge in oil prices could make the FOMC more hesitant to convey a dovish stance. Consequently, traders will closely monitor the Fed’s release of its “dot plot” forecast for policy interest rates at 2 p.m., as well as Chair Jerome Powell’s press conference at 2:30 p.m., for any market-shaping information.

Stephen Innes, managing partner at SPI Asset Management, points out that yields on 10-year U.S. Treasuries are reaching new cycle highs, and investors seem inclined to maintain their dollar positions, signaling a hawkish direction.

Matthew Raskin, strategist at Deutsche Bank, notes that traders’ primary focus will center on the Fed’s economic projections and the “dot plot.” Any shifts in these indicators will be closely analyzed for implications, with the degree of these shifts and Powell’s interpretation of them playing a pivotal role.

Companies in the Spotlight:

• Instacart (CART) shares have declined by 4% in premarket trading following their recent IPO, which initially showed a 12% increase.
• General Mills Inc. (GIS) has gained 1% after reporting fiscal first-quarter results that exceeded expectations. The company’s ability to manage inflation, stabilize its supply chains, and maintain a resilient consumer base contributed to this positive outcome.
• Coty Inc. (COTY) has surged by 4.6% in premarket trading after revising its guidance for fiscal 2024 upward. This boost is attributed to the strength of its prestige fragrance business.