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U.S. stock futures ease as ‘peak inflation’ rally stalls

U.S. stock futures fell on Monday as the market caught its breath folowing the dramatic rally of recent sessions.

How are stock-index futures trading
  • S&P 500 futures
    ES00,
    -0.42%

    dipped 22 points, or 0.5%, to 3978

  • Dow Jones Industrial Average futures
    YM00,
    -0.30%

    fell 126 points, or 0.4%, to 33637

  • Nasdaq 100 futures
    NQ00,
    -0.69%

    eased 96 points, or 0.8%, to 11752

On Friday, the Dow Jones Industrial Average
DJIA,
+0.10%

rose 32 points, or 0.1%, to 33748, the S&P 500
SPX,
+0.92%

increased 37 points, or 0.92%, to 3993, and the Nasdaq Composite
COMP,
+1.88%

gained 209 points, or 1.88%, to 11323. The Nasdaq Composite rose 9.4% over the past two days, the biggest such rally since November 2008.

What’s driving markets

Perhaps a touch of profit taking was inevitable. U.S. equity futures were a bit softer on Monday as bulls took stock after a remarkable surge at the end of last week.

Signs of cooling inflation in Thursday’s consumer prices data bolstered hopes that the Federal Reserve may not need to continue hiking borrowing costs at the pace previously feared, and triggered a 6.5% rally in the S&P 500 over the previous two sessions.

That was the biggest two-day bounce since April 2020, as “investors far from being positioned for good inflation, and [better] China COVID news, [were] caught with massive amounts of cash on the sidelines,” said Stephen Innes, managing partner at SPI Asset Management.

Jim Reid, strategist at Deutsche Bank, noted that a batch of factors had helped spark the latest recovery. “Impressive levels of European gas storage due to the weather, very short positioning in US equities, mid-terms being out the way, positive seasonals, less event risk in the Russian/Ukraine war, and now softer U.S. inflation than expected are all helping,” said Reid in a morning bulletin.

Also helping the rebound was a sharp rally in recently-pummeled tech stocks as investors welcomed signs that the more spendthrift among them, such as Meta
META,
+1.03%
,
were looking to reduce costs.

However, Innes added that such outsized market rallies “often see some mean reversion” and now the S&P 500 was facing some technical barriers according to other analysts.

“The market gapped up cleanly and ferociously through that 3900 level. Now its next test is looming: the 200-day moving average and that downtrend line tracing the previous sequence of highs,” said Callum Thomas at ChartStorm.


Source: ChartStorm

“We know the narrative [cooler CPI] that helped it breakout, [it] makes me wonder what story we might tell once its reaches resistance…markets have a habit of finding excuses to do what they are technically ready to do!” Thomas added.

The U.S. government bond market returned after an extended weekend to commemorate Veterans Day and benchmark yields
TMUBMUSD10Y,
3.886%

retraced a small portion of Thursday’s sharp falls as traders noted Fed officials had already begun trying to cool the markets “peak inflation” ardor.

“The burst of euphoria which erupted over U.S. markets and spread more widely at the end of last week is ebbing away after fresh warnings that the fight against inflation is still a hard slog yet to be won,” wrote Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, in a morning note.

“This latest reminder comes from U.S. Federal Reserve Governor Christopher Waller, who said at a conference in Sydney that the endpoint to rate increases is likely ‘ways off’. The message is coming loud and clear from the Fed – investors should hold their horses when it comes to expectations of looser monetary policy,” Streeter added.

Source

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