U.S. stock futures traded sideways Wednesday evening after a turbulent day in markets that saw the Nasdaq close in correction territory — or at least 10% down from its peak — as rising bond yields and concerns around tighter monetary policy continued to plague investors.
Contracts on all three major indexes hovered near breakeven after the tech-heavy Nasdaq Composite logged a closing level more than 10% below its November record high in the earlier session
The Federal Reserve is in a blackout period ahead of its policy-setting meeting next week but remained in focus as Treasury yields soared in anticipation of the central bank’s move on interest rates. The benchmark 10-year note topped 1.9% on Wednesday to mark the highest level since January 2020 before modestly retreating to 1.85%. Meanwhile, volatility in equities has persisted as investors’ expectations for growth is stymied by the prospect of tightening policy.
“At this stage in the business cycle, it’s less about the level of rates than about the shock in interest rates, and that shock will eventually wear off,” Clearnomics market strategist James Liu told Yahoo Finance Live. “You need a period where the market gets used to the fact that the Fed might have to accelerate interest rates.”
Liu added that worries have been compounded by the Federal Reserve’s game of catch-up, while investors and economists have called for the central bank to act on rising price levels.
Panic over a rise in interest rates is based on two assumptions, according to Commonwealth Financial Network chief investment officer Brad McMillan: The assumption that the increase reflects a problem with the financial markets and the belief that a change in rates suggests a move for the “correct” rates. According to McMillan, both assumptions are wrong.
“This narrative is pretty standard for this stage of the economic cycle,” McMillan said in a note, adding that headlines around potential interest rate hikes and subsequently slower growth and lower stock valuations are missing “context.”
Under the first assumption, any problem with the financial markets stems from the pandemic, and from an economic perspective, is appearing to fade, McMillan explained, adding that an increase signals a recovery from the problem, not an indicator of one. The second assumption, which says recent rates are the correct and normal ones as they are, is incorrect as well, since rates cannot currently be the “right” ones under the circumstances of the pandemic.
“If both of these assumptions are wrong — and they are — the narrative we are seeing in the headlines must be wrong as well,” he said.
In a speech on Wednesday, President Joe Biden said the burden of mitigating inflationary pressures falls mostly on the shoulders of the nation’s central bank. Fed policymakers have acknowledged in recent weeks that they stand ready to do just that.
“We’re not actually surprised by the volatility in markets this year,” Wilmington Trust senior economist Rhea Thomas told Yahoo Finance Live. “You do have a Fed that is expected to raise rates… we do expect the Fed to raise rates by 2-3 hikes this year.”
On the economic front, markets will get a fresh read Thursday morning on weekly initial jobless claims. First-time unemployment filings are expected to hold steady at 225,000, according to consensus estimates compiled by Bloomberg. Claims saw an unexpected jump in January at 230,000 but rivaled pre-virus levels for more than a month.
Corporate earnings will continue to pour in the weeks ahead with earnings season well under way. Big names set to report on Thursday include Netflix (NFLX), Travelers (TRV), American Airlines (AAL), and Northern Trust (NTRS).
6:01 p.m. ET Wednesday: Stock futures trade sideways after volatile session
Here were the main moves in futures contracts ahead of the
S&P 500 futures (ES=F): +3.50 points (+0.08%), to 4,527.75
Dow futures (YM=F): +43.00 points (+0.12%), to 34,953.00
Nasdaq futures (NQ=F): +14.00 points (+0.09%) to 15,047.50
Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc