The major U.S. index futures are currently pointing to a lower open on Wednesday, with stocks likely to move to the downside after ending yesterday’s lackluster session narrowly mixed.
Lingering uncertainty about the outlook for interest rates may weigh on the markets following Tuesday’s remarks by Minneapolis Federal Reserve President Neel Kashkari.
Kashkari suggested interest rates may need to remain at current levels for an “extended period” and said he couldn’t rule out another rate increase.
The Federal Reserve is still widely expected to lower rates sometime in the third quarter, although traders may take the opportunity to cash in on some of the recent strength in the markets.
While the major averages ended yesterday’s trading narrowly mixed, they all remain at their best levels in about a month.
Nonetheless, overall trading activity may remain subdued amid another relatively quiet day on the U.S. economic front.
A report on weekly jobless claims may attract attention on Thursday, while the University of Michigan is due to release its preliminary reading on consumer sentiment in May on Friday.
Stocks saw modest strength throughout much of the trading session on Tuesday but gave back ground in afternoon trading to end the day little changed. The Dow still managed to close higher for the fifth consecutive session, reaching its best closing level in a month.
The major averages ended the day narrowly mixed. While the Nasdaq edged down 16.69 points or 0.1 percent to 16,332.56, the Dow crept up 31.99 points or 0.1 percent to 38,884.26 and the S&P 500 inched up 6.96 points or 0.1 percent to 5,187.70.
The modest strength seen for most of the stock came as stocks continued to benefit from renewed optimism about the outlook for interest rates.
Relatively dovish comments from Federal Reserve Chair Jerome Powell combined with weaker-than-expected job growth in April have largely eliminated short-lived concerns the Fed might actually consider raising rates.
Investors have instead grown increasingly confident about a rate cut in the coming months, with the chances rates will be lower by September now at 82.6 percent, according to CME Group’s FedWatch Tool.
However, buying interest waned in afternoon trading after Kashkari suggested interest rates may need to remain at current levels for an “extended period.”
“I would need to see multiple positive inflation readings suggesting that the disinflation process is on track” before cutting rates, Kashkari said before the Milken Institute 2024 Global Conference.
Kashkari also said he could not rule out the Fed once again raising rates, calling the bar for hiking rates “quite high” but “not infinite.”
Among individual stocks, shares of Disney (NYSE:DIS) fell sharply even though the entertainment giant reported better than expected fiscal third quarter earnings.
Most of the major sectors ended the day showing only modest moves, contributing to the lackluster close by the broader markets.
Airline stocks showed a substantial move to the downside, however, with the NYSE Arca Airline Index tumbling by 2.7 percent.
Considerable weakness also emerged among computer hardware stocks, as reflected by the 1.1 percent loss posted by the NYSE Arca Computer Hardware Index. On the other hand, utilities stocks turned in a strong performance on the day, driving the Dow Jones Utility Average up by 1.3 percent.