US stock futures were trading mixed on Wednesday, with the S&P 500 and Nasdaq 100 futures slightly down and the Dow Jones Industrial Average futures slightly up. This comes after the latest sell-off triggered by worries about a more hawkish Federal Reserve and rising bond yields.
S&P 500 futures were down less than one point, or 0.05%, to 3989, while Dow Jones Industrial Average futures rose 29 points, or less than 0.1%, to 32892. Nasdaq 100 futures added 4.75 points, or 0.05%, to 12177.
On Tuesday, the Dow Jones Industrial Average fell 575 points, or 1.72%, to 32856, the S&P 500 declined 62 points, or 1.53%, to 3986, and the Nasdaq Composite dropped 145 points, or 1.25%, to 11530.
Fed’s Hawkish Stance Weighs on Market Sentiment
The stock market sentiment remains fragile as the Federal Reserve’s hawkish stance weighs on investors’ minds. On Tuesday, Fed Chairman Jay Powell told the Senate Banking Committee that the central bank was prepared to increase the pace of interest rate hikes if data indicated it was warranted to damp inflation.
This has hammered government bonds, causing short-term yields to fresh four-decade highs. The market increased bets that the Fed may hike rates by 50 basis points in two week’s time and ultimately take rates as high as 5.65% by autumn. This talk of the Fed taking rates ‘higher for longer’ has continued to rattle equity investors.
Powell will give further testimony on Wednesday, this time to the House Financial Services Committee, starting at 10 a.m. Eastern. The market will be keenly watching for any further signals from Powell.
Economic Updates to Watch for on Wednesday
Apart from Powell’s testimony, there are other US economic updates set for release on Wednesday. The February ADP employment report is scheduled to release at 8:15 a.m., followed by the trade balance for January at 8:30 a.m. The JOLTS job openings survey will be published at 10 a.m., while the Fed’s Beige Book of economic anecdote will be released at 2 p.m. Eastern.
The global stock sell-off continues with investors jolted by the realization that the work of the Federal Reserve in trying to tame wild inflation in the US is far from over. The sight of rising implied borrowing costs, and the prospects of a recession they may cause, pushed the S&P 500 stock barometer back below both the 4,000 level and its 50-day moving average.
“Inflation is forcing major central banks to abandon the policy regime of volatility suppression via floored rates and QE. That’s a source of volatility, as is global economic fluidity. The last thing the economy and markets need is this extra layer of policy-induced volatility,” says Mohamed El-Erian, advisor to Allianz and Gramercy.
The risk-off sentiment has spilled over to trade in Asia, with European indices also heading for falls in early trading. It remains to be seen how the market will react to Powell’s testimony and the economic updates.