Market Snapshot: S&P 500 futures advance as Treasury yields dive

U.S. stock futures rose early Tuesday as hopes the Federal Reserve may be finished raising interest rates this cycle pushed Treasury yields sharply lower.

How are stock-index futures trading

  • S&P 500 futures
    rose 7 points, or 0.2%, to 4375

  • Dow Jones Industrial Average futures
    added 60 points, or 0.2%, to 33861

  • Nasdaq 100 futures
    climbed 34 points, or 0.2%, to 15221

On Monday, the Dow Jones Industrial Average
rose 197 points, or 0.59%, to 33605, the S&P 500
increased 27 points, or 0.63%, to 4336, and the Nasdaq Composite
gained 53 points, or 0.39%, to 13484.

What’s driving markets

The gains early Tuesday in S&P 500 futures come after the benchmark started the week with a 0.6% gain, an advance secured as anxiety over violence in the Middle East was counteracted by comments from Federal Reserve officials suggesting a recent tightening of credit conditions reduced the need for another rate hike.

Fed Vice Chair Philip Jefferson said on Monday the central bank could “proceed carefully” following the recent surge in Treasury yields to fresh 16-year highs, and Fed Bank of Dallas President Lorie Logan said the surge in long-term rates may mean less need for additional increases in borrowing costs.

The 10-year Treasury
which was not trading Monday because of a U.S. national holiday, saw its yield dive 15 basis points to 4.653% on Tuesday.

“Even with the evolving situation in the Middle East, investors remained focused on the Fed’s current thinking on interest rates and the need to contain inflation,” said Richard Hunter, head of markets at Interactive Investor.

“Comments from Fed officials provided a timely boost, suggesting that the recent gains in Treasury yields, which influence rates for borrowing levels, could be doing some of the heavy lifting for them,” Hunter added.

Traders Tuesday were pricing in an 88% chance that the Fed will leave rates unchanged after its November meeting, while the chances of a 25 basis point hike in December fell to 28%, down from 40% just a week ago.

But there is plenty of economic data and Fed chatter to digest before then. Particularly important will be the producer and consumer inflation numbers for September, released on Wednesday and Thursday respectively.

U.S. economic updates set for release on Tuesday include the August wholesale inventories, due at 10 a.m. Eastern. The Federal Reserve Bank of New York will publish its survey of consumer expectations, including views on inflation, at 11 a.m. and there are also a number of Fed officials making official appearances and speeches on Tuesday.

Raphael Bostic, president of the Atlanta Fed takes part in a moderated conversation starting at 9:30 a.m.; Fed Gov. Christopher Waller speaks at George Mason University at 1 p.m.; Neel Kashkari,president of the Minneapolis Fed, appears in Minot, North Dakota at 3 p.m.; and Mary Daly, president of the San Francisco Fed, appears at a town hall event at 6 p.m.

Mark Newton, technical strategist at Fundstrat, said the stock market’s recovery from its low in Monday’s session was a good sign: “[The S&P 500] is now back above the important 4336 level that marked former lows. While I’ll gain even more conviction if QQQ [a Nasdaq 100 ETF] can regain $369.15 near 9/9 lows, Monday’s about face was quite constructive in my work, and I feel it continues.”

“Support lies near 4300 and shouldn’t be tested right away, in my view, as this rally likely shows additional upside follow-through,” Newton added.

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