Bloomberg: US stock-index futures rose as investors bet the outcome of midterm elections will support a nascent rally. Treasuries were steady before Thursday’s inflation print that may offer clues on Federal Reserve policy. Contracts on the S&P 500 and Nasdaq 100 indexes rose at least 0.2% each, after US stocks posted a second-day advance on Monday. The two-year Treasury yield was little changed at 4.73%. The dollar gained after a two-day slide. NVidia Corp. climbed in early New York trading as it began producing a processor for China. Take-Two Interactive Software Inc. fell after reducing its forecast for net bookings. Bitcoin tumbled as part of a crypto selloff.
Bulls have charged back into equity markets over the past two days, taking comfort from a history of robust performance following midterm results. While polls suggest Republicans could make gains, thereby placing a check on Democratic policies, investors are busy examining multiple scenarios. The best outcome for Treasuries could be a Republican control of both the House of Representatives and Senate, while the dollar could find support should Democrats keep both chambers.
“The US debt burden could stop the Democrats from putting in place many economic reforms that they would’ve otherwise, if Republicans are sufficiently crowded to block them moving forward,” Ipek Ozkardeskaya, a senior analyst at Swissquote Bank, wrote in a note. “Hence, slowing debt under GOP could slow growth.”
Tuesday’s two-way moves in Treasuries, however, underscored the fragile sentiment in markets where the Federal Reserve’s monetary tightening remains the biggest headwind. Thursday’s consumer-price-index data may offer the next cue for traders even as money markets are raising their peak-rate wagers.
The inflation reading is coming after the core consumer price index rose more than forecast to a 40-year high in September. Even if prices begin to moderate, the CPI is far above the Fed’s comfort zone.
“Inflation is going up. It may be coming down periodically. But it’s going up,” Richard Harris, chief executive of Port Shelter Investment Management, said on Bloomberg Television. “The market is kind of uncertain — it’s hoping for the best but really should be preparing for the worst.”
Meanwhile, swaps markets are leaning toward a 50 basis-point Fed rate increase in December, after a fourth consecutive jumbo hike to a target range of 3.75% to 4% at last week’s meeting. Rates are expected to peak slightly above 5% around mid-2023.
JPMorgan Chase & Co.’s Marko Kolanovic warned of the risk to stocks from ongoing Fed hawkishness, and Morgan Stanley’s Mike Wilson said companies will need to aggressively shrink expenses, including through layoffs, before he becomes more optimistic on US equities.
Already, signs of stress in US corporate performance are becoming visible. Of the 441 S&P 500 companies that have reported quarterly results, almost a quarter have missed profit forecasts.