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U.S. stock futures on Wednesday were struggling to rally after the latest selloff that sent the Dow industrials down by nearly 700 points.

How are stock-index futures trading
  • S&P 500 futures
    ES00,
    -0.01%

    rose 2 points, or less than 0.1%, to 4007

  • Dow Jones Industrial Average futures
    YM00,
    +0.07%

    added 4 points, or less than 0.1%, to 33166

  • Nasdaq 100 futures
    NQ00,
    -0.03%

    gained 5 points, or less than 0.1%, to 12102

On Tuesday, the Dow Jones Industrial Average
DJIA,
-2.06%

fell 697 points, or 2.06%, to 33130, the S&P 500
SPX,
-2.00%

declined 82 points, or 2%, to 3997, and the Nasdaq Composite
COMP,
-2.50%

dropped 295 points, or 2.5%, to 11492.

What’s driving markets

U.S. equity futures on Wednesday were struggling to find their footing after suffering the biggest selloff in over two months as concerns about higher borrowing costs continued to damp investor sentiment.

Stocks had jumped at the start of the year on hopes that easing inflation could allow the Federal Reserve to start cutting interest rates later in the year after hiking them sharply since March 2022.

However, recent data has shown the U.S. economy remains resilient in the face of the Fed’s sharp tightening of monetary policy, and this has pushed bond yields higher in anticipation of further Fed hawkishness.

The S&P 500 closed below 4,000 as 2-year Treasury yields flirted with their highest level since 2007. The CBOE Vix index
VIX,
+1.97%
,
a measure of expected stock market volatility, stands above 23, having dipped below 18 at the start of the month.

‘’Investors are waking up to a stark realization that the Fed’s work is not done, and that interest rates may have to be hiked even higher to cool hot inflation,” said Susannah Streeter, head of money and markets at Hargreaves Lansdown.

“High hopes that the Federal Reserve could cut rates by the end of the year have been dashed, replaced by worries that up to three hikes in quick succession may be needed to tame the price spiral,” Streeter added.

With this in mind, traders will be warily eyeing the minutes of the Fed’s Jan. 31-Feb. 1 policy meeting which will be published on Wednesday 2 p.m. Eastern. Later, at 5:30 p.m., New York Fed President John Williams will deliver comments.

Mark Newton, head of technical strategy at Fundstrat, noted the relatively low volume that accompanied the stock market’s slide on Tuesday and suggested the pullback may have already run its course.

“Overall, U.S. equities should be nearing an appealing area to expect some stabilization and a reversal back higher. Only if SPX undercuts 3945 would I fear that a larger decline might be in store,” he said in a note to clients.

“Such a move would involve slicing back under the 200-day moving average in SPX as well as undercutting the 61.8% retracement zone of the prior low to high range. Finally, this would also involve breaking the larger uptrend from last October’s lows. At present, all of these are premature, and pullbacks should be buyable this week, with the first meaningful support level just fractionally below current levels,” Newton concluded.

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