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Monday, October 3, 2022

Stock futures dip with Fed set to kick off September meeting on Tuesday

Wall Street set to open in the red as Fed kicks off September meeting

Stock futures slipped Tuesday as Wall Street looked to build on a modest rebound ahead of another rate hike from the Federal Reserve.

Futures tied to the Dow Jones Industrial Average fell 204 points, or 0.66%. S&P 500 futures shed 0.73%, and those for the Nasdaq 100 traded 0.82% lower.

The Federal Open Markets Committee kicks off its September meeting on Tuesday, where central bankers are expected to announce a 0.75 percentage point rate hike on Wednesday. Stocks have tumbled in recent weeks as comments from Fed Chair Jerome Powell and an unexpectedly hot August consumer price index report caused traders to prepare for even higher rates until inflation cools.

“Heightened fear of recession risk has helped to keep US policy rate pricing inverted from early 2023 to early 2026 and may help to explain why equity volatility is higher than the macro landscape would generally predict,” wrote Goldman Sachs’ Dominic Wilson in a note to clients Tuesday. “Even so, markets will need to adjust significantly further if the more hawkish view of the labour market is right.”

Wilson said the S&P 500 needs to trade within the 2900 to 3375 range and 5-year yields between 4.5-5.4% if the Fed needs to see higher unemployment to gain confidence that inflation will fall.

During a choppy trading session on Monday, stocks rose in the afternoon to snap a two-day losing streak and claw back some of their recent losses. The Dow rose 197 points, or about 0.6%. The S&P 500 and Nasdaq Composite gained roughly 0.7% and 0.8%, respectively.

However, after the market closed on Monday, Ford announced that supply chain issues would cost the automaker an extra $1 billion in the third quarter. Shares fell nearly 5% in premarket trading.

On the economic front, investors will get a fresh look at the housing market on Tuesday morning with the August reports for housing starts and building permits.

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