It is setting up to be a tough open for stocks, which continue to grapple with the Fed’s inference from yesterday that it may not be done yet raising rates, that rates are going to stay higher for longer, and that the market should dial back its rate-cut expectations for 2024. The added point of consternation is that Fed Chair Powell acknowledged that the neutral rate might be higher than the Fed’s estimate for the longer-run rate (2.5%).
In brief, the equity futures market is mirroring the interest rate angst that is showing up in the Treasury market.
The 2-yr note yield is up four basis points to 5.17%, but it had been at 5.05% just before yesterday’s FOMC announcement, and the 10-yr note yield is up 13 basis points to 4.48% after scraping 4.32% just before yesterday’s FOMC announcement.
Currently, the S&P 500 futures are down 38 points and are trading 0.9% below fair value, the Nasdaq 100 future are down 191 points and are trading 1.2% below fair value, and the Dow Jones Industrial Average futures are down 192 points and are trading 0.6% below fair value.
The movement in rates has overshadowed the positive response to FedEx’s (FDX) earnings report, news that Cisco (CSCO) is going to acquire Splunk (SPLK) for $28 billion, or $157 per share, in cash, and reports from CNBC that the Hollywood writers’ strike may soon be ending.
Individual news items are not driving the market. The early trade is a macro trade, which is to say the early declines should be broad based as participants key on higher rates as a basis to sell stocks in a less discriminate fashion.
The latest jobless claims report certainly didn’t lower the interest rate temperature in the room. Initial claims for the week ending September 16 declined by 20,000 to just 201,000 (Briefing.com consensus 225,000), hitting their lowest level since January. Continuing jobless claims for the week ending September 9 decreased by 21,000 to 1.662 million.
The key takeaway from the report is that the low level of initial claims shows that the labor market is still operating in a tight mode, which is going to remain a basis for the Fed to keep operating with a restrictive interest rate mindset.
In other economic news, the Philadelphia Fed Index dropped to -13.5 in September (Briefing.com consensus -2.0) from 12.0 in August with the index for new orders checking in at -10.2 versus 16.0 in August. The dividing line between expansion and contraction is 0.0. Something else that stands out in this report is that the indexes for prices paid (to 25.7 from 20.8) and prices received (to 14.8 from 14.1) both increased month-over-month.
The Q2 Current Account Balance deficit narrowed to $212.1 billion (Briefing.com consensus -$222.0 billion) from an upwardly revised -$214.5 billion (from -$219.3 billion) in Q1.
The August Existing Home Sales Report and August Leading Indicators Report will be released at 10:00 a.m. ET. As it stands now, the jump in rates is providing an indicator that will lead to a weak start for stocks.
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Originally Posted September 21, 2023 – Interest rate angst driving stocks lower
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