Stock futures rise as traders adjust to increasing Treasury yields

In a notable turn of events on the last trading day of September, the S&P 500 experienced a decline of 0.25%, concluding at 7,651.54. This downturn came despite the release of new U.S. economic data that indicated a slowdown in inflation. Earlier in the session, the index had appeared robust, reaching a high of nearly 0.7% gain before retracing those gains.

The Nasdaq Composite, in contrast, managed to end the day with a modest increase of 0.24%, finishing at 26,861.06. However, the Dow Jones Industrial Average faced a steeper decline, falling by 0.86%, which translates to a drop of 443.87 points, bringing it down to 50,906.05.

According to a media source, the personal consumption expenditures price index (PCE) for August showed an annual increase of 3.4%, a slight decrease from July’s 3.7%. This data point emerged as economists had expected inflation to stabilize at 3.7%. Notably, the core PCE, which excludes food and energy, recorded only a 3% year-on-year rise, a reduction from the previous month’s 3.3% and falling short of economists’ forecasts.

In the bond market, the 10-year Treasury yield rose approximately 4 basis points, closing the day at about 5.298%. Earlier in the trading session, it had surpassed the 5.3% mark, while the 30-year Treasury yield also saw an uptick, finishing nearly 5 basis points higher at 5.642%.

Market analysts noted that, despite a favorable inflation report, attention is shifting towards upcoming employment data. Non-farm payrolls are anticipated to have added 84,000 jobs in September, a significant reduction from the 168,000 new jobs observed in August.

Traders are now recalibrating expectations regarding potential Federal Reserve rate hikes. The CME Group’s FedWatch tool suggests a 35% probability of a quarter-point increase in interest rates next month, a drop from approximately 51% the previous day. Despite indicating light inflation, the market maintains a baseline expectation for additional monetary tightening before the year’s end, with estimates suggesting a 75% chance of implementing three hikes by mid-2024.

The overall market reflected mixed performance for the month of September, with the S&P 500 declining by 0.5% and the Dow down 4.3%. The Nasdaq, however, fared better, posting a monthly increase of 1.9%. As the third quarter concludes, the S&P 500 has advanced by 2%, while the Nasdaq has recorded a slightly higher 2.5% rise. Meanwhile, the Dow has had a challenging quarter, showing a loss of 2.7%.

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