U.S. stock futures are making an attempt to reduce the losses incurred in September as Treasury yields retreat from their cycle highs.
Stock-Index Futures Trading
- S&P 500 futures (ES00) have risen by 19 points, or 0.4%, reaching 4334.
- Dow Jones Industrial Average futures (YM00) have gained 120 points, or 0.4%, totaling 33995.
- Nasdaq 100 futures (NQ00) have added 69 points, or 0.5%, standing at 14784.
On Tuesday, the Dow Jones Industrial Average (DJIA) experienced a decline of 388 points, or 1.14%, falling to 33619. Similarly, the S&P 500 (SPX) declined by 64 points, or 1.47%, reaching 4274. The Nasdaq Composite (COMP) dropped by 208 points, or 1.57%, resting at 13064.
The S&P 500 has recorded a decrease of 5.2% thus far in September. During this period, the yield on 10-year Treasurys (BX:TMUBMUSD10Y) surged by 48 basis points, marking its highest level since October 2007. Traders’ speculation on the Federal Reserve increasing interest rates once again to bring inflation back to its 2% target has driven this surge.
Stephen Innes, managing partner at SPI Asset Management, stated, “Investors continue to grapple with the implications of an extended period of elevated interest rates and the potential economic repercussions, and they seem to favor the cut-run maneuver this week.” He added, “Heightened investor anxiety due to the looming possibility of a partial U.S. government shutdown is not helping matters.”
However, there is a simultaneous dip in Treasury yields on Wednesday along with a rise in stock-index futures. This signals that some investors believe the market’s recent decline may be exaggerated.
Wall Street Fear Gauge Hits Four-Month High
The CBOE VIX index, also known as Wall Street’s fear gauge, reached its highest level in four months, surpassing 19 on Tuesday. Accompanying this, the S&P 500’s 14-day relative strength index, a widely observed momentum indicator, closed the session slightly above the “oversold” threshold at 30.3, marking its lowest level of the year.
Market Bulls Remain Optimistic
Despite these developments, Mark Newton, the head of technical strategy at Fundstrat, remains optimistic for market bulls. He believes that the current market downturn is still part of a larger upward trend that began in October of last year.
According to Newton, “this remains part of a larger uptrend from last October’s lows that has not been broken in SPX. In my opinion, one can continue to label recent volatility as short-term weakness within an ongoing uptrend.”
Smaller Companies Face Pressure
However, the prolonged presence of higher interest rates has taken a toll on smaller companies’ stocks. These companies are particularly susceptible to increased borrowing costs. As a result, the average stock in the small-cap Russell 2000 index now sits at a significant 33% decline from its 52-week high, as reported by Bespoke Investment Group.
Small-Cap Bloodbath Continues
The recent performance of stocks has been cause for concern, particularly for those invested in small-caps. Bespoke highlights that “September’s end can’t come soon enough based on the action we’re seeing in stocks this week. It’s a bloodbath in small-caps. At the end of July, the Russell 2,000 was up just under 14% YTD. Now it’s up just 0.3%.”
Economic Updates Awaited
Looking ahead, investors are anticipating several U.S. economic updates scheduled for release on Wednesday. Notably, the August durable goods orders will be announced at 8:30 a.m. Eastern time.
