Michael M Santiago
Stock index futures rose slightly on Friday with the potential for big moves until Federal Reserve Chairman Jay Powell took to the stage late in the morning.
S&P Index Futures (SPX) +0.2%Futures contracts for the Nasdaq 100 Index (NDX: IND) +0.1% Dow futures (INDU) +0.2% were higher.
The growing hopes of reaching an agreement on the debt ceiling helped to what appears to be a set weekly gain. As Friday approaches, the S&P 500 (SP500(up 1.8%, Nasdaq Composite Index)NDX: IND(Dow Jones increased by 3.3%)DJI) is the laggard, up 0.7%.
“It was all too easy last week to point out that the debt ceiling had little negative impact on markets (except for short-term T-bills) but this week’s more positive sentiment on the subject has moved bond markets a lot and sent the S&P 500 and Nasdaq to their highest levels since late August. , suggesting that more risk may have been priced in than we thought,” said Jim Reid of Deutsche Bank. The latest driver was comments from Republican President McCarthy, who said “I can now see where a deal might go,” and that the negotiators were in a “much better place.”
Prices retreated again after yesterday’s gains. The 10-year Treasury yield (US10Y) rose 4 basis points, to 3.69%. The two-year yield (US2Y) rose 2 basis points to 4.29%.
“Low long-term US government bond yields have been a big help for stocks this year,” said strategist Ben Ledler. “They boosted present and future value cash flows and pushed stock valuations higher. With earnings under pressure, this has driven all returns this year.”
“The good news is that yields are likely to remain low and will be supportive,” he added. “Each 0.5% move in the 10-year US yield shifts the S&P 500’s price-earnings fair value valuation multiplier by +/- 8%. With yields moving inversely with prices, that’s also a positive for long-term bonds (IEF). (TLT).”
Powell is scheduled to speak at 11 AM ET on the Monetary Policy Perspectives panel. Ahead, New York Fed President John Williams speaks at 8:45 AM ET, and Fed President Michelle Bowman wakes up at 9:00 AM ET.
On Thursday there was some hawkish talk from the Federal Reserve that sent bonds selling. Lori Logan, president of the Federal Reserve Bank of Dallas, said she doesn’t see the progress needed to pause in the hiking cycle.
“Central bank speaking voices have dominated the calendar again,” said Paul Donovan, chief economist at UBS. “ECB President Lagarde speaks, but markets are unlikely to care. Fed Chair Williams is another matter — Williams represents the voice of thoughtful economic leadership at the Fed.”
“US Federal Reserve Chairman Powell and former Fed Chairman Bernanke share the stage today,” he said. Unfortunately, this is no economists’ Thunderdome, where two Fed chairmen enter and only one may leave. Bernanke is unlikely to do anything as blunt as criticize his successor. Bernanke’s time at the Fed was marked by fresh-thinking bank policy. The Feds started chanting wildly like “Hitchhike, Hike, Hike.”
Among active stocks, Farfetch rose 20% on stronger-than-expected sales.
