Stock Index Futures Plunge as Investors Weigh Interest Rate Outlook

Oleksandr Pylypenko - Barchart - Tue Sep 26, 2023

December S&P 500 futures (ESZ23)are down -0.40%, and December Nasdaq 100 E-Mini futures (NQZ23) are down -0.53% this morning as market participants continued to price in an extended period of elevated interest rates.

In Monday’s trading session, Wall Street’s major indices ended in the green. Amazon.com Inc (AMZN) rose over +1% after the retail and tech giant said it would invest up to $4B in artificial intelligence startup Anthropi. Also, NVIDIA Corporation (NVDA) gained more than +1% after Morgan Stanley said the recent decline in the stock has created “another buying opportunity.” In addition, Sealed Air Corporation (SEE) climbed over +3% after Citi upgraded the stock to Buy from Neutral. On the bearish side, HP Inc (HPQ) fell more than -1% after Warren Buffett’s Berkshire Hathaway sold 4.97M common shares of the PC maker.

“Anything that would cause investors to believe that we are close to the end of this rate-tightening cycle and not on the precipice of recession could make investors feel a little more confident. Because of worries over rising oil prices, rising dollar, and rising interest rates, we could see some additional weakness in this traditionally soft seasonal period,” said Sam Stovall, chief investment strategist at CFRA Research.

Chicago Fed President Austan Goolsbee stated in a CNBC interview on Monday that the United States could still avoid a recession. “I’ve been calling that the golden path, and I think it’s possible, but there are a lot of risks, and the path is long and winding,” Goolsbee said. At the same time, Minneapolis Fed President Neel Kashkari said he expects the U.S. central bank will need to implement one more interest rate hike this year and keep policy tighter for longer, given the robust economy.

Meanwhile, U.S. rate futures have priced in an 18.4% probability of a 25 basis point rate increase at the next central bank meeting in November and a 34.5% chance of a 25 basis point rate hike at December’s monetary policy meeting.

On the earnings front, notable companies like Costco (COST), Cintas (CTAS), and Ferguson (FERG) are set to report their quarterly figures today.

In other news, Jamie Dimon, chairman and CEO of JPMorgan Chase & Co., suggested the possibility of U.S. interest rates reaching 7%, a worst-case scenario that might catch consumers and businesses off-guard.

Today, all eyes are focused on U.S. CB consumer confidence data in a couple of hours. Economists, on average, forecast that September CB Consumer Confidence will stand at 105.5, compared to the previous value of 106.1.

Also, investors will likely focus on the U.S. S&P/CS HPI composite - 20 n.s.a, which came in at -1.2% y/y in June. Economists foresee the July figure to be -0.3% y/y.

U.S. building permits and U.S. new home sales data will also be closely watched today. Economists forecast August Building Permits to be at 1.543M and August New Home Sales to come in at 700K.

The U.S. Richmond manufacturing index will be reported today as well. Economists expect September’s figure to be -6, compared to the previous number of -7.

In the bond markets, United States 10-year rates are at 4.521%, down -0.55%.

The Euro Stoxx 50 futures are down -0.55% this morning as investors expressed concern about the potential for an extended period of elevated interest rates. Losses in technology and real estate stocks are leading the overall market lower. China-exposed luxury stocks such as LVMH and Richemont also lost ground amid ongoing apprehensions related to the troubled Chinese property sector. Meanwhile, S&P Global said on Tuesday that higher interest rates in Europe will put pressure on the credit ratings of companies and banks in the region. “The trend in credit quality is turning negative for corporates, especially for speculative-grade issuers, as financing conditions tighten,” the rating firm said in a new report. In corporate news, Asos Plc (ASC.LN) dropped about -1% after the online fashion retailer reported a 15% decline in Q4 sales and projected earnings to be near the lower end of its guidance range.

The European economic data slate is mainly empty on Tuesday.

Asian stock markets today closed in the red. China’s Shanghai Composite Index (SHCOMP) closed down -0.43%, and Japan’s Nikkei 225 Stock Index (NIK) closed down -1.11%.

China’s Shanghai Composite today closed lower as concerns over a greater meltdown in the country’s property sector and geopolitical tensions dampened market sentiment. Most sectors in China dropped on Tuesday. China Evergrande Group plunged about -7% after a unit of the embattled property developer missed a bond payment, and former executives were detained. Meanwhile, U.S. President Joe Biden’s administration Monday imposed new trade restrictions on 11 Chinese and 5 Russian companies, alleging that some of them provided components to make drones for Russia’s war effort in Ukraine. Investor attention this week is also directed toward the September readings of manufacturing and service sector activity in China.

“The recent improvement in some economic activity indices has convinced many market participants that China’s economy has already bottomed out, but we remain cautious,” Nomura said in a note.

Japan’s Nikkei 225 Stock Index closed sharply lower today, with sentiment being weighed down by lingering concerns about further interest rate hikes in the United States. Heavyweight chip-related stocks retreated on Tuesday, with chip-making equipment maker Tokyo Electron falling over -3% and chip-testing equipment maker Advantest slumping more than -2%. Meanwhile, Japan’s Prime Minister Fumio Kishida unveiled on Monday the pillars of an upcoming economic stimulus package to be compiled next month to help households mitigate the impact of price increases and boost wages. In corporate news, Japan Exchange Group Inc. rose over +2% after the operator of the Tokyo Stock Exchange lifted its annual net profit guidance. The Nikkei Volatility, which takes into account the implied volatility of Nikkei 225 options, closed up +3.46% to 18.22.

Pre-Market U.S. Stock Movers

DraftKings Inc (DKNG) climbed over +3% in pre-market trading after JPMorgan upgraded the stock to Overweight from Neutral.

Femasys Inc (FEMY) spiked about +195% in pre-market trading after the U.S. FDA granted 510(k) Clearance for the company’s new fertility treatment, FemaSeed.

Snap Inc (SNAP) fell over -1% in pre-market trading after HSBC initiated coverage of the stock with a Reduce rating.

Bumble Inc (BMBL) gained about +2% in pre-market trading after HSBC initiated coverage of the stock with a Buy rating.

Olin Corporation (OLN) dropped over -1% in pre-market trading after Wells Fargo downgraded the stock to Equal Weight from Overweight.

You can see more pre-market stock movershere

Today’s U.S. Earnings Spotlight: Tuesday - September 26th

Costco (COST), Cintas (CTAS), Ferguson (FERG), Synnex (SNX), Neogen (NEOG), Progress (PRGS), AAR (AIR), MillerKnoll (MLKN), United Natural Foods (UNFI).

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On the date of publication, Oleksandr Pylypenko did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.