U.S. stock futures have seen a rise early Thursday, with Treasury yields hovering close to two-week lows, ahead of the release of the September CPI inflation report.
How the Stock-Index Futures Are Performing
- S&P 500 futures (ES00) have climbed 11 points, or 0.2%, to reach 4421.
- Dow Jones Industrial Average futures (YM00) have gained 64 points, or 0.2%, reaching 34056.
- Nasdaq 100 futures (NQ00) have added 48 points, or 0.3%, and are now at 15428.
Wednesday’s Market Performance
On Wednesday, the Dow Jones Industrial Average (DJIA) increased by 66 points, or 0.19%, reaching 33805. Similarly, the S&P 500 (SPX) saw an increase of 19 points, or 0.43%, reaching 4377. The Nasdaq Composite (COMP) gained 97 points, or 0.71%, to reach 13660.
Focus on September U.S. Consumer Prices Index Report
Traders’ attention on Thursday will be on the release of the September U.S. consumer prices index report, scheduled for 8:30 a.m. Eastern.
Investors are hopeful that the inflation data will confirm a continued easing of price pressures, supporting the narrative that the Federal Reserve has completed its cycle of raising interest rates. This scenario has led to a sharp decline in benchmark bond yields and a rally in the stock market.
Economists predict that the headline annual CPI will decrease from 3.7% in August to 3.6% last month. Similarly, they expect core inflation, which excludes volatile items like food and energy, to fall from 4.3% to 4.1%.
Treasury Yields Remain Low
The 10-year Treasury yield (BX:TMUBMUSD10Y) has dropped over 30 basis points since reaching a 16-year high around 4.86% on Friday. Numerous Fed officials have indicated that there may be little need to raise borrowing costs again this year.
Uncertainty Surrounding the Future Path of the Economy
Minutes from the Fed’s September policy meeting, published on Wednesday, revealed that members are “highly uncertain” about the future path of the economy. As a result, they have decided to proceed with a cautious and meeting-by-meeting approach to interest-rate policy.
Market Shifts and Earnings Optimism Fuel Rally in Bonds and Equities
As global markets braced for the release of the Consumer Price Index (CPI) data, it was central bank rhetoric and the tragic events in the Middle East that seemed to have a greater impact on investor sentiment. The convergence of these factors created ideal conditions for a bond rally, according to Jim Reid, a strategist at Deutsche Bank.
Following the release of the Federal Reserve minutes, the likelihood of a rate hike in November plummeted, with the probability of no rate increase soaring above 90%. This marked a significant shift from the 70% level earlier in the week. Similarly, the futures market is pricing in a greater than 70% chance of no rate hike in December, compared to a more balanced 50/50 probability a few days ago, as highlighted by Ipek Ozkardeskaya, a senior analyst at Swissquote Bank.
These developments have contributed to a remarkable 2.8% gain in the S&P 500 equity benchmark over the past four sessions. Additionally, investors are eagerly anticipating the start of the third-quarter corporate earnings season, which kicks off on Friday.
Analysts forecast a 1.3% year-on-year increase in aggregate S&P 500 earnings for the quarter. Tajinder Dhillon, a senior research analyst at Refinitiv, also points out that market sentiment has become increasingly positive regarding corporate profits recently. After six quarters of declining expectations leading into earnings season (with an average decline of 4.2 percentage points), this quarter sees a rare upswing in earnings growth expectations (Q3: +0.3 percentage points).
Dhillon believes this sets the stage for another potential earnings surprise, should history repeat itself after a couple of strong quarters earlier this year (Q1 and Q2). These two quarters delivered the highest earnings surprise rate since 2021.
In addition to the CPI data, Thursday’s economic updates include the weekly initial jobless claims report, scheduled for release at 8:30 a.m. There will also be a speech by Boston Fed President Susan Collins, in which she will discuss the economic outlook, at 4 p.m.