By
Steve Muchoki
April 16th, 2024
After two consecutive days of rally, the US stock index futures take a dip as selling pressure builds ahead of Friday’s Key inflation data.
In the early morning trade on Wednesday, June 7, the US stock futures were down marginally following two consecutive days of gains on Wall Street. Further selling pressure is likely to come as the US is set to release its inflation numbers for May 2022.
Futures for the Dow Jones Industrial Average dipped 0.21% or 70 odd points. Similarly, the futures for the S&P 500 dipped by 0.28% and for Nasdaq 100 by 0.4% earlier today. On Tuesday, investors shrugged off concerns relating to the economic slowdown.
The Dow Jones was up 260 points on Tuesday while the Nasdaq Composite also surged by nearly 1%. Concerns around dampening economic growth and soaring inflation continue to hover around. In a note to investors, Lauren Goodwin, economist and portfolio strategist at New York Life Investments wrote:
″[The] market could continue to reflect concerns around financial conditions tightening and earnings growth slowing”.
Investors will remain cautious ahead of Friday’s consumer price index reading for last month. The inflation data will be crucial for the Fed whether or not to tighten its monetary policy further. Reportedly, the U.S. Federal Reserve is planning to raise interest rates by 50 basis points in upcoming increments.
But with the possibility of aggressive rate hikes, fears of slipping into recession are growing further. Gargi Chaudhuri, head of iShares investment strategy at BlackRock told CNBC:
“The question is whether this slower implied pace of tightening is attributable to the belief that the Fed will meet its policy goals or because the economy will be tipping into recession. We believe the US will avoid a recession.”
Bear Market Rally or Bond Rates
All three of the top US equity indices have bounced back following the lows of May 2022. However, analysts are skeptical whether this is really a trend reversal or just a bear market rally. In a note to clients, Citi strategist Chris Montagu said:
“For six consecutive weeks since the beginning of April, investors continued to add new shorts and, hence, extend their bearish bias on the market. While this bearish momentum did fade at the end of May, the past week has shown no signs of any bullish flow momentum to support a more sustained rally from here”.
Another metric to watch would be the 10-year Treasury Yield. Earlier this month, the Treasury Yield surged past 3% as investors sold bonds.