Dow futures climb as traders jostle for position before Fed decision

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U.S. stock futures on Tuesday pointed to a positive start to the month as the earnings season trundled on and traders jostled for position ahead of Wednesday’s Federal Reserve interest rate decision.

How are stock-index futures trading

  • S&P 500 futures rose 35 points, or 0.9%, to 3918
  • Dow Jones Industrial Average futures gained 210 points, or 0.6%, to 32985
  • Nasdaq 100 futures added 117 points, or 1%, to 11564

On Monday, the Dow Jones Industrial Average fell 129 points, or 0.39%, to 32733, the S&P 500 declined 29 points, or 0.75%, to 3872, and the Nasdaq Composite dropped 114 points, or 1.03%, to 10988. The Dow Jones Industrial Average in October rose 14%, its best monthly percentage gain since January 1976 and its best October on record.

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What’s driving markets

A mixed third quarter corporate earnings season continues, with Pfizer Uber Eli Lilly AMD and Airbnb among those releasing results on Tuesday. With 268 of S&P 500 constituents having reported, 73% have delivered earnings above expectations, 5% have matched and 22% were below, according to Refinitiv data.

The numbers appear not to have been as bad as many investors feared, and this is one of the factors that helped the S&P 500 record a sturdy rally last month, said analysts.

“October proved to be a much better month for financial assets after the disastrous performance over Q3, aided by hopes of a pivot from central banks, a stabilization in Europe’s energy situation, as well as an end to the U.K. market turmoil,” said Jim Reid, strategist at Deutsche Bank, in a morning note.

“But we shouldn’t get ahead of ourselves, as the S&P 500’s +8.1% gain over the month in total return terms means it’s only partially recovered from its -9.2% loss in September, let alone its -23.9% loss over the first nine months of the year as a whole,” Reid added.

Mark Newton, head of technical strategy at Fundstrat, said that Monday’s mild sell-off did not detract from what had been a “stellar month” for the market. “The combination of negative sentiment, bullish mid-term seasonality and some positive cycles gave plenty of warnings that October might live up to its billing as a ‘Bear-Killer’ month.”

But he warned: “The question remains, will the Fed spook investors on Wednesday, or deliver a warm ‘trick or treat’ dovish surprise that could help this rally to extend further?”

The Fed is expected to raise rates by 75 basis points to a range of 3.75% to 4%. Economic data for it to consider before then include on Tuesday the S&P U.S. manufacturing PMI for October, due at 9:45 a.m. and the ISM manufacturing index for October at 10 a.m. The jobs openings reports will also be published at 10 a.m. All times Eastern.

Stephen Innes, managing partner at SPI Asset Management, said it would be sensible for traders to adopt a cautious stance given the market’s latest rally left it vulnerable to a more hawkish-than-expected outcome from the U.S. central bank.

“Investors are wisely pausing for thought [on Monday] ahead of what is expected to be another jumbo Fed rate hike while attempting to plot a Fed rate hike path well into 2023,”

Ipek Ozkardeskaya, senior analyst at Swissquote Bank, fretted that investors were being too simplistic in their hopes for a dovish tone from the Fed this week. “The risk is, because investors are waiting in ambush for the Fed to soften its tone, any sign of a less hawkish Fed could send both the bond and equity markets rallying.”

“And that’s exactly what the Fed doesn’t want to happen. A broadly cheerful market rally would boost inflation expectations, and inflation. And inflation is nowhere close to the Fed’s 2% policy target,” said Ozkardeskaya.

Meanwhile, copper futures rose 2.7% to $3.4680 per pound and WTI crude futures climbed 1.9% to $88.24 a barrel after reports, later denied by Chinese officials, that Beijing had put together a committee to remove many long-standing COVID-19 restrictions.

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