Wall St braces for lower open as rate worries push bond yields higher

  • Reuters
  • Stock Market News
Wall St braces for lower open as rate worries push bond yields higher
Credit: © Reuters.

By Johann M Cherian and Lisa Pauline Mattackal

(Reuters) - Wall Street was on track to open lower on Wednesday, as concerns around the timing and scale of the Federal Reserve's interest rate cuts pushed Treasury yields higher and pressured megacap stocks.

Microsoft (NASDAQ: MSFT ), Alphabet (NASDAQ: GOOGL ) and Meta (NASDAQ: META ) dipped between 0.7% and 0.8% in premarket trading as U.S. bond yields across the board rose to near four-week highs. [US/]

Conflicting expectations on the size and timing of interest rates have kept the market on edge since the start of this year.

Rising bond yields typically reflect expectations of higher interest rates, which mean costlier financing and smaller profit margins for companies.

Traders began the year expecting cuts by March, but sticky inflation and hawkish comments from central bankers have dampened expectations to a 25 basis points cut only by November or December, as per the CME FedWatch Tool.

"The Fed is in a conundrum, with strong growth numbers and yet, inflation does not seem to be responding to anything. Oil prices are also rising and that's pressuring the market a little as well," said Robert Pavlik, senior portfolio manager at Dakota Wealth Management.

"Folks are saying, 'what's the reason for me to be buying right now?'" said Pavlik.

The CBOE Volatility Index , a Wall Street fear gauge, hit its highest levels since May 3.

The central bank's Beige Book, due at 2:00 p.m. ET on Wednesday, is expected to throw light on the state of the U.S. economy. Markets will also closely monitor comments from this year's voting policymakers, including New York President John Williams and Raphael Bostic.

But the main focus this week is on Friday's release of April's Personal Consumption Expenditure data - the Fed's preferred inflation gauge.

At 8:26 a.m. ET, Dow e-minis were down 225 points, or 0.58%, S&P 500 e-minis were down 32.5 points, or 0.61%, and Nasdaq 100 e-minis were down 126.5 points, or 0.67%.

Futures tracking the Nasdaq led declines, after the tech-heavy index closed above the 17,000 mark for the first time on Tuesday, driven by gains in Nvidia (NASDAQ: NVDA ) and fellow chip stocks.

However, the benchmark S&P 500 index ended flat and the Dow closed lower as unexpectedly strong consumer confidence data left market participants doubting the possibility of an imminent start to Fed's monetary policy easing cycle.

Marathon Oil (NYSE: MRO ) advanced 9.1% after ConocoPhillips (NYSE: COP ) said it would buy the Houston-based company in an all-stock deal for a little over its $15 billion market value.

American Airlines (NASDAQ: AAL ) cut its second-quarter profit forecast on weaker pricing power, sending its shares down 8.8%. Fellow carriers such as Southwest and Delta were also down over 2.4% each.

© Reuters. FILE PHOTO: People walk around the Financial District near the New York Stock Exchange (NYSE) in New York, U.S., December 29, 2023. REUTERS/Eduardo Munoz/File Photo

DICK'S Sporting Goods jumped 8.2% after lifting forecasts for annual sales and profit, while Abercrombie & Fitch raised its annual sales growth forecast, sending shares of the retailer up 1.4%.

Broadly strong corporate earnings have helped offset rate worries. Of the 480 companies in the S&P 500 that reported earnings as of Friday, 77.9% surpassed analyst estimates versus a long-term average of 66.7%, according to LSEG data.

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