The major U.S. index futures are currently pointing to a lower open on Wednesday, with stocks likely to see further downside after starting the new year on a downbeat note.
Concerns investors have become too optimistic about the likelihood of near-term interest rate cuts may weigh on the markets ahead of the release of the minutes of the Federal Reserve’s latest monetary policy meeting later in the day.
Treasury yields are seeing further upside ahead of the release of the minutes amid worries Fed officials will signal a more cautious approach to future rate decisions.
The yield on the benchmark ten-year note is moving higher for the fourth consecutive session after falling to its lowest levels in over five months a week ago.
Ahead of the release of the minutes Richmond Federal Reserve Tom Barkin said the U.S. economy heading for a soft landing is “increasingly conceivable but in no way inevitable.”
“The airport is on the horizon. But landing a plane isn’t easy, especially when the outlook is foggy, and headwinds and tailwinds can affect your course,” Barkin said in prepared remarks to the Raleigh Chamber of Commerce: Launch 2024. “It’s easy to oversteer and do too much or understeer and do too little.”
Barkin also noted the U.S. economy continues to defy expectations, suggesting consumer spending is unlikely to pull back as long as equity values are high and the labor market remains tight.
“Longer-term rates have dropped recently, which could stimulate demand in interest-sensitive sectors like housing,” Barkin said. “While you might think this would be a first-class problem, strong demand isn’t the solution to above-target inflation. That’s why the potential for additional rate hikes remains on the table.”
Stocks moved mostly lower during trading on Tuesday, extending the pullback seen in the final trading session of 2023. The Nasdaq showed a particularly steep drop, reflecting notable weakness among tech stocks.
The Nasdaq plunged 245.41 points or 1.6 percent to 14,765.94, continuing to give back ground after ending last Wednesday’s trading at its best closing level in almost two years. The S&P 500 also slid 27.00 points or 0.6 percent to 4,742.83.
Meanwhile, the narrower Dow recovered from initial weakness and bounced back and forth across the unchanged line before closing up 25.50 points or 0.1 percent at 37,715.04.
The weakness in the broader markets came as some traders continued to cash in on recent strength, particularly among technology stocks.
Last year, the Nasdaq skyrocketed by 43.4 percent in 2023, while the S&P 500 soared by 24.2 percent and the Dow surged by 13.7 percent.
A steep drop by shares of Apple (AAPL) also weighed on the tech sector, with the iPhone maker tumbling by 3.6 percent to its lowest closing level in well over a month.
The slump by Apple comes after Barclays downgraded its rating on the company’s stock to Underweight from Equal Weight.
Meanwhile, some traders remained away from their desks following the New Year’s Day holiday, looking ahead to the release of some key U.S. economic data in the coming days.
Semiconductor stocks showed a substantial move to the downside on the day, dragging the Philadelphia Semiconductor Index down by 3.7 percent. The index continued to give back ground after reaching a record closing high last Wednesday.
Considerable weakness was also visible among airline stocks, as reflected by the 2.5 percent plunge by the NYSE Arca Airline Index.
Software and computer hardware stocks also saw notable weakness, contributing to the steep drop by the Nasdaq, while gold stocks also moved lower despite an uptick by the price of the precious metal.
On the other hand, healthcare, pharmaceutical and biotechnology stocks saw notable strength, helping to limit the downside for the broader markets.