U.S. stock futures remained largely unchanged in early trading on Thursday as global bond yields continued to increase. Traders were keeping a close eye on two upcoming jobs reports, as they could potentially affect the Federal Reserve’s decision on cutting interest rates next year.
Stock Index Futures Performance
- S&P 500 futures (ES00) saw a slight dip of 0.2%, equivalent to 70 points, settling at 36042.
- Dow Jones Industrial Average futures (YM00) fell by 0.1%, or 4 points, resulting in a value of 4552.
- Nasdaq 100 futures (NQ00) experienced a marginal rise of less than 0.1%, equivalent to 8 points, reaching 15823.
Previous Day’s Performance
On Wednesday, the Dow Jones Industrial Average (DJIA) saw a decline of 0.19%, dropping by 70 points to settle at 36054. The S&P 500 (SPX) declined by 0.39%, losing 18 points to reach 4549. The Nasdaq Composite (COMP) dropped by 0.58%, shedding 83 points and closing at 14147.
Impact of Rising Global Bond Yields
U.S. stock-index futures faced challenges as global bond yields continued to rise, primarily due to speculations regarding the Bank of Japan’s plans to exit its ultra-loose monetary policy. Consequently, the Nikkei 225 equity index (JP:NIK) in Japan experienced a decline of 1.8%. Additionally, the Japanese yen (USDJPY) gained 1.3% against the U.S. dollar, while 10-year Japanese government bond yields (BX:TMBMKJP-10Y) surged by 11 basis points.
Wall Street Rally’s Struggle
Despite an impressive rally in November, during which the S&P 500 gained 8.9%, the momentum has waned this week. Some traders are questioning whether the market has become too optimistic about the Federal Reserve’s potential decision to cut interest rates as early as the spring of 2024.
Decreasing Inflation and Cooling Labor Market
Lower inflation levels and indications of a cooling labor market have played a role in declining benchmark 10-year Treasury yields (BX:TMUBMUSD10Y). These yields dropped from a 16-year high of 5% in October to nearly 4.1% during Wednesday’s session. As a result, the probability of the Federal Reserve reducing borrowing costs by at least 25 basis points during its March meeting has risen to 58.4%, up from just 22% a month ago.
The Impact of Jobs Data on Investors
Investors eagerly await the release of Thursday’s weekly unemployment claims data and Friday’s nonfarm payrolls report to gauge the state of the job market and its potential effect on inflationary pressures.
A High-Stakes Situation
According to Stephen Innes, the managing partner at SPI Asset Management, the upcoming 48 hours will be quite eventful for traders. He likens the anticipation to a thrilling movie, saying, “Get out the popcorn, it could be an entertaining 48 hours as traders jockey for position into and eventually out of the granddaddy of all economic releases, U.S. nonfarm payrolls.”
Proceed with Caution
Innes advises investors to exercise caution when hoping for weak jobs reports. The labor market in the United States is experiencing unexpected contractions, which can have implications beyond just being a positive outcome for traders. “This is not necessarily a ‘risk-on’ panacea, especially if the downward momentum in the jobs markets picks up a good head of steam,” warns Innes.
Uncertainty and Reaction
Traders are apprehensive about whether soft jobs data signifies a potential economic downturn. However, Tom Lee, the head of research at Fundstrat, suggests that a stronger-than-forecast nonfarm payrolls report might actually elicit a positive reaction from the market. Lee predicts that even if the November employment report shows strength, the market could still rally due to favorable factors such as soft wage growth and an increase in labor supply.
Other Data to Watch
Aside from the key jobs reports, there are other significant pieces of data being released. On Wednesday, October wholesale inventories will be announced at 10 a.m., followed by consumer credit for October at 3 p.m.
Earnings Report
Finally, several companies are set to announce their earnings. Dollar General will report before the market opens, and Broadcom, Lululemon, and DocuSign will announce their earnings after the market closes.
