US stock futures were weaker on Wednesday as traders waited for key inflation data.
Tuesday’s Dow Jones Industrial Average
DJIA
fell 57 points, or 0.17%, to 33562, the S&P 500
SPX
down 19 points, or 0.46%, to 4119 and the Nasdaq Composite
COMP
fell 77 points or 0.63% to 12180.
What moves the markets
Traders were reluctant to make bold bets ahead of the US CPI report for April, which is due at 8:30 am Eastern time. Headline CPI annual inflation is expected to remain at 5% from March levels, but core inflation, which excludes volatile items like food and energy, is expected to ease to 5.5% from 5.6%.
Inflation hit a 40-year high of 9.1% last June, prompting the Federal Reserve to quickly raise interest rates by 500 basis points in just over a year.
“The extent to which price pressures still weigh on the US economy is the focus today as investors watch and await the latest inflation snapshots. This is a big piece of the puzzle for central bank policymakers and will help them decide whether to pause on rate hikes in June,” said Susannah Streeter, Hargreaves Lansdown’s head of money and markets.
Investors are currently pricing in that the Federal Reserve will begin to cut borrowing costs in the coming months, a hope that has been buoying stocks of late and helping the S&P 500 move to the top of the 3800-4200 range, which he has held throughout the year.
However, some analysts worry that markets are set for disappointment given current expectations.
“Peak inflation has been a tailwind for US stocks since the beginning of the year. Still, investors are getting weary of the slow downtrend of late. They are on the sidelines ahead of US CPI, where asymmetries distort CPI trading risk,” said Stephen Innes, Managing Partner at SPI Asset Management.
“More than expected CPI pressure hurts risky assets as it puts the Fed in its place – caught between inflation concerns, slowing growth and the need to address banking sector woes,” Innes added.
Tom Lee, head of research at Fundstrat, said it might be reasonable for traders to expect a hotter CPI number than consensus expectations, but that the market could handle it.
“The macro remains challenging, so proceed with caution. But we see a positive risk/reward tradeoff,” said Lee, noting that the S&P 500 saw only a “slow leak” down after the strong rally late last week, even as 2-year bond yields rose.
Corporate earnings reports due Wednesday include Roblox
RBLX
,
Wendy’s
WHOM
,
and Icahn Enterprises
IEP
before the opening bell and Walt Disney
DIS
,
Robinhood Markets
HOOD
,
and Beyond Flesh
BYND
after closing.
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