VOT Research Report
Analytics and Recommendations
As the midterm elections appeared to bring about the intended deadlock in Washington, pushing bond yields and the currency down, U.S. stock futures labored on Wednesday to extend a winning streak to a fourth day.
How are futures for stock index traded on Wednesday today
The S&P 500 futures contract (ES00) fell 8 points, or 0.2%, to 3827.
Futures for the Dow Jones Industrial Average (YM00) dropped 71 points, or 0.2%, to 33104.
Futures for the Nasdaq 100 NQ00 dropped 12 points, or 0.1%, to 11083.
The S&P 500 SPX grew 21 points, or 0.56%, to 3828 on Tuesday, while the Nasdaq Composite COMP gained 52 points, or 0.49%, to 10616. The Dow Jones Industrial Average DJIA advanced 334 points, or 1.02%, to 33161. The S&P 500 is up 7% from its closing bottom for 2022, which was reached in mid-October, but it is still down 19.7% for the year.
What’s driving markets
Equity index futures were little changed as the results from the U.S midterm elections continued to trickle in.
The S&P 500 has gained 2.9% over the past three sessions, partly on hopes that gains for the Republicans will deliver partisan gridlock in Washington.
Wall Street expects this will be beneficial for equity valuations since it may reduce regulatory uncertainty, crimp the likelihood of more corporate taxes, and also mean less government spending, which should help undercut inflation.
In turn, softer inflation could, at the margin, reduce the need for the Federal Reserve to hike interest rates aggressively. The S&P 500 is down nearly 20% in 2022 as the Fed has raised borrowing costs from effectively zero at the start of March to a range of 3.75% to 4%.
The fact that neither major party is winning the election in a “storm” and that Republicans seem to be on course to take control of the House of Representatives puts a stop to any more stimulus measures for the foreseeable future.
After flirting with 15-year highs near 4.75% at the start of the week, the 2-year U.S. Treasury yield BX:TMUBMUSD02Y, which is particularly responsive to monetary policy, was trading at about 4.66% on Wednesday. The DXY, or dollar index, fell 0.1% to 109.54. At 11 a.m. Eastern, Richmond Fed President Tom Barkin is scheduled to speak.
However, investors must receive a favorable update on the consumer prices index on Thursday for the most recent stock rally to continue.
The October CPI will be crucial, and the general expectation is for another “hot print,” with some predicting a year-over-year increase of 9%. This demonstrates how many armchair economists” just place boundaries around both growth and velocity – prediction that the inflation number would be lower than anticipated.
Overall, this maintains us bullish on stocks through the end of the year. Additionally, we believe that this rally will last longer than the 23-day rally that followed the June pivot rhetoric.
That being said, recent high revenue releases haven’t exactly been doing much for equities. Following Tuesday’s closing bell, Disney DIS was the latest company to let investors down, with both the group’s shares falling by almost 7% in premarket trading.
Markets have also recently experienced a new crypto hiccup, but this seems to have been quickly dismissed by investors who believe there is little evidence of broader contagion. As investors considered Binance’s potential acquisition of rival FTX, Bitcoin BTCUSD was trading below $18,000.
The sight of new digital token sales, together with falling bond yields and a weaker dollar, appear to have helped gold GC00 and silver SI00, which reached one-month and five-month high points, correspondingly.
