Future U.S. stock markets faltered as investors waited for the Federal Reserve’s latest economic outlook and any signals about interest rates and bond buying over the next few years.
Futures tied to the broad S&P 500 index and the Dow Jones Industrial Average were relatively flat, suggesting that benchmarks may be disorderly after market opening. Both indicators recorded temperate declines on Tuesday, a day after closing the records. Contracts related to the Nasdaq-100, a very heavy technology, fell 0.3% on Wednesday.
Federal Reserve officials, who plan to post their latest economic projections at 2 p.m. ET, will likely say they expect the labor market and inflation to pick up faster than they had forecast in December. In general, the central bank is expected to reaffirm its commitment to ultralight interest rates and the purchase of bonds for now.
Money managers have already begun setting prices for rising inflation, which led to a sale of government bonds, and bet that interest rates will start rising by the end of next year. They have also started coming out of stocks that appear to be too rich after last year’s rally.
“General markets are expensive today, and this is based on central bank support,” said Hugh Gimber, strategist at JP Morgan Asset Management. “So this whole market is very, very sensitive to changes in central bank policy.”
A timely plot of the projections of Fed officials could show that some officials expect a top-level increase in 2023, Gimber said. “But the key will be communication: how will they balance that modestly brighter outlook while indicating that the Fed is still there to support markets?”
In 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 goes down. Yield rose sharply from this year’s low of 0.915% on January 4th.
Fed Chairman Jerome Powell’s signals and signals at his press conference, which begins at 2:30 p.m., will be key for investors.
“These are less impoverished forecasts, but still poor communications, so Powell is really walking a cold rope,” Gimber said. “Powell will use his comments to avoid overreacting to the bond market.”
In recent weeks, investors have begun to reshape their portfolios as the economic outlook is bolstered by the sum of government stimulus spending and the deployment of the coronavirus vaccine. This has boosted bets on defeated and economically sensitive market sectors, while a rebound in high-tech stocks has eased.
Traders worked Tuesday at the New York Stock Exchange floor.
Photo:
Colin Ziemer / Associated Press
“Markets have basically worked as hard as they could to anticipate the recovery of 2021. For the most part, the market has seen what it wants to see,” said Tim Courtney, investment director at Essential Wealth Advisors. “Everything is based on interest rates right now: we are entering an economic recovery and rates are normalizing and rising and that will benefit economically sensitive companies.”
Prior to the meeting, investors will also analyze data on housing initiatives in the United States to gain clues about the strength of the economy. The figures, which are due to be released at 8:30 am ET, are expected to see new residential building projects fall slightly in February from the previous month.
Brent crude, the international benchmark for oil, fell 0.8% to $ 67.87 a barrel.
In overseas markets, the Stoxx Europe 600 fell 0.4%.
In Asia, most major indices changed little at the close of trading. South Korea’s Kospi index fell 0.6%, while Shanghai Composite, Hang Seng and Nikkei 225 indexes ended the day largely.
Write to Will Horner to [email protected]
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