Stock Futures contracts tracking major U.S. stock indexes opened flat on Monday, reflecting investor caution after a rise in Treasury yields. This rise stemmed from increased bets that the Federal Reserve might postpone interest rate cuts planned for this year.
Stock Futures Muted: Fed Rhetoric and Strong Economic Data Point to Delayed Rate Cuts
Hawkish comments from Fed officials last week, coupled with stronger-than-anticipated manufacturing and jobs data, signaled a robust U.S. economy. This economic resilience lessens the pressure on the Fed to swiftly reduce interest rates.
Stock Futures and U.S. stock indexes closed the previous week with losses as investors adjusted their expectations for the Fed’s monetary policy. The market now anticipates a roughly 51% chance of the central bank implementing its first rate cut in June, down from 58% at the beginning of last week, according to the CME FedWatch Tool. Similarly, anticipation for more than three rate cuts this year has been scaled back, with current projections hovering around three, compared to forecasts of three to four cuts just a few weeks ago, based on LSEG data.
Rising Bond Yields Put Pressure on Equities
The yield on the benchmark 10-year Treasury note climbed to 4.4541%, its highest level since last November, exerting downward pressure on equities. This highlights the sensitivity of stock prices to interest rate movements.
“While a single payroll report shouldn’t be overemphasized, especially considering significant seasonal effects and upcoming data points before the June meeting,” cautioned Mohit Kumar, Chief Economist Europe at Jefferies, in a research note. “If economic data continues to be strong, we may need to reassess our call for a rate cut in June.”
Focus on Upcoming Events for Policy Cues and Inflation Data
Market participants will be keenly awaiting comments from Chicago Fed President Austan Goolsbee and his Minneapolis counterpart Neel Kashkari later today for further insights into potential policy direction. Additionally, the release of the March U.S. Consumer Price Index (CPI) later this week will be closely watched. Analysts expect the headline inflation rate to rise to 3.4% year-on-year, up from 3.2% in February.
The minutes from the Fed’s most recent policy meeting, where the central bank maintained its guidance of three rate cuts in 2024, are also scheduled for release this week.
First-Quarter Earnings Season Heats Up
The first quarter earnings season is set to gain momentum this week, with banking giants JPMorgan Chase (NYSE:JPM), Citigroup (NYSE:C), and Wells Fargo (NYSE:WFC) slated to report towards the week’s end. Asset manager BlackRock (NYSE:BLK) and Delta Air Lines (NYSE:DAL) are also on the earnings release calendar this week.
Wells Fargo Raises S&P 500 Target, Tesla and Chipmakers Rise
Meanwhile, Wells Fargo increased its year-end target for the S&P 500 index to 5,535, the most optimistic forecast among Wall Street brokerages, up from a previous estimate of 4,625.
In pre-market trading, Dow e-minis were up a modest 0.03%, S&P 500 e-minis edged up 0.01%, and Nasdaq 100 e-minis gained 0.07%.
Tesla (NASDAQ:TSLA) rose 1.9% pre-market after CEO Elon Musk announced the company’s Robotaxi unveiling scheduled for August 8th.
Shares of companies associated with cryptocurrency and blockchain technologies advanced in tandem with rising Bitcoin prices. Cryptocurrency exchange operator Coinbase (NASDAQ:COIN), crypto miner Marathon Digital (NASDAQ:MARA), and software firm MicroStrategy all witnessed gains between 6.1% and 11.6%.
U.S.-listed shares of Taiwan Semiconductor Manufacturing Company (TSMC) climbed 2.0% after the U.S. Commerce Department announced a $6.6 billion subsidy for the company’s U.S. unit’s advanced semiconductor production facility in Phoenix, Arizona.
However, Skyworks Solutions (NASDAQ:SWKS) dipped 2.4% after KeyBanc downgraded the Apple supplier to “sector weight” from “overweight.”
Conclusion
Stock Futures markets exhibited a subdued response on Monday as rising bond yields, fueled by bets on a delayed Fed rate cut timeline, dampened investor sentiment. The upcoming economic data releases and Fed policy pronouncements will be crucial in shaping market expectations for the remainder of the year.
