Index futures fall as investors assess the economic situation
Stock futures edged higher early Wednesday as investors struggled to find a suitable approach to play the market amid mixed economic updates and events. Historically, September has been a tough month for the stock market, primarily because it’s the month when fund managers typically rid their portfolios of underperforming stocks.
Futures contracts on the Dow Jones Industrial Average (DJIA) edged up 0.04%, while those of the S&P 500 (SPX) gained 0.10%, as of 6:16 a.m. EST Wednesday. Meanwhile, the Nasdaq 100 (NDX) futures were up 0.20%.
Bond yields jumped on Tuesday, pushing down stock prices. The yield on the 10-year Treasury note hit 3.365% in Tuesday’s regular trading session, while that of the 30-year Treasury note hit its highest level in eight years.
As of Tuesday’s market close, the S&P 500, Dow and Nasdaq 100 posted losses of 0.41%, 0.55 and 0.72%, respectively.
Some good news for the inflation picture
Meanwhile, amid high inflation, the relative purchasing power of US consumers also appears to be rising, as evidenced by the record strength of the dollar against the currencies of major US trading partners. This attracts investors from around the world to US stocks as well as bonds.
In addition, experts are optimistic about the slowdown in global inflation in July, which is partly attributable to the global weakening of demand. Sounds like an oxymoron, but according to JP Morgan economist Nora Szentivanyi, weaker demand and fears of recession are dampening inflationary pressures by reducing demand for commodities (thus lowering commodity prices) and reducing demand for imports (therefore, helping to recover from supply chain bottlenecks).
Conflict in PMI data is confusing
Additionally, on Tuesday, the Institute for Supply Management revealed via its services PMI that the US services sector posted better year-over-year growth in August than in July. The index involves surveys carried out in sectors such as health, finance, agriculture and construction.
Interestingly, however, separate data released the same day by S&P Global revealed that the services sector shrank more in August than in July, due to weaker demand.
This clash of key economic data from two credible sources may also be behind the ambivalence in market sentiment.
On Wednesday, the Federal Reserve’s beige book of economic updates will be read, which will shed more light on what to expect from the economy for the rest of this year.