US futures faltered as investors waited for the Federal Reserve’s latest economic outlook and any signals on interest rates and bond purchases for the next few years.
Futures on the S&P 500 broad index and the Dow Jones industrial average were relatively flat, suggesting that benchmarks could be shaken after the market opened. Both indicators registered moderate declines on Tuesday, one day after the closing of registrations. Nasdaq-100 heavy technology contracts fell 0.3% on Wednesday.
Federal Reserve officials, who are scheduled to launch their latest economic projections at 2 p.m. ET, will probably say they expect the labor market and inflation to return faster than they anticipated in December. In general, the central bank is expected to reaffirm its commitment to ultra-low interest rates and bond purchases for the time being.
Money managers have already started setting prices for rising inflation, leading to a sale of government bonds and betting that interest rates will start to rise by the end of next year. They have also begun to leave stocks that appear to be too rich in value after last year’s rally.
“General markets are expensive today and this is based on the support of the central bank,” said Hugh Gimber, a strategist at JP Morgan Asset Management. “So this whole market is very, very sensitive to changes in central bank policy.”
A punctual plot of the Fed’s decision-makers’ projections could show that some officials expect a first-rate increase in 2023, Mr Gimber said. “But the key will be communication: How will they balance this modestly brighter outlook while signaling that the Fed is still there to support markets?”
In the bond markets, the yield on the 10-year US Treasury benchmark rose to 1.644% from 1.622% on Tuesday. Yields increase as the price falls. The yield rose sharply from this year’s low of 0.915% on January 4th.
Fed Chairman Jerome Powell’s hints and signals at his news conference, which begins at 2:30 p.m., will be essential for investors.
“It’s less corrupt forecasts, but communications are still corrupt, so Powell is really on a tightrope,” Mr Gimber said. “Powell will use his comments to prevent an overreaction in the bond market.”
In recent weeks, investors have begun to reshape their portfolios, as the economic outlook is supported by huge amounts of government spending to stimulate and launch coronavirus vaccination. This led to bets on the beaten and economically sensitive sectors of the market, while a rally of flight technology stocks weakened.
Traders worked on the floor of the New York Stock Exchange on Tuesday.
Photo:
Colin Ziemer / Associated Press
“The markets have worked as hard as they could in anticipating the recovery in 2021. For the most part, the market has seen what it wants to see,” said Tim Courtney, chief investment officer at Exencial Wealth Advisors. “Everything is based on interest rates right now: we are entering an economic recovery, and rates are normalizing and rising, which will favor those economically sensitive companies.”
Prior to the meeting, investors will also analyze data on US housing starts to find clues about the strength of the economy. Figures, due to be released at 8:30 AM ET, should show that new residential building projects fell slightly in February compared to the previous month.
Crude oil Brent, the international benchmark for oil, fell 0.8% to $ 67.87 a barrel.
In overseas markets, Stoxx Europe 600 fell 0.4%.
In Asia, most major indices changed little at the close of trading. The Kospi index in South Korea fell 0.6%, while the Shanghai Composite, Hang Seng and Nikkei 225 index largely closed the day.
Write to Will Horner to [email protected]
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