Interest rates jumped sharply on Wednesday to multi-year highs, and for a good part of the day that didn't seem to bother the stock market. The stock market's quiescent view of interest rate matters, however, changed suddenly in late afternoon trading and a broad-based rally got undercut with selling interest.
The major indices still ended the day with modest gains, but those gains look set to be unwound at today's open.
Currently, the S&P futures are down 9 points and are trading 0.3% below fair value. The Nasdaq 100 futures are down 36 points and the Dow Jones Industrial Average futures are down 84 points. Interest rates, meanwhile, are up again, which is reportedly the primary catalyst for this morning's negative disposition.
The 10-yr yield is up two basis points to 3.18% (after hitting 3.22% earlier) and the 30-yr bond is up two basis points to 3.36% (after hitting 3.39% earlier). Longer-dated tenors are bearing the brunt of the sell-through pressure. The 2-yr note yield is up just one basis point to 2.87%.
The widening spread between the 2-yr note yield and the 10-yr note yield should foster some relative strength in the financial sector, yet that assumption has not been enough to turn the broad market tide.
Yesterday's sudden reversal and some burgeoning angst that interest rates are poised to enter a more restrictive domain for stocks has tempered some of the enthusiasm that recently carried the major indices to new record highs.
On a related note, market participants are paying attention to a remark made yesterday afternoon by Fed Chairman Powell in a PBS interview in which he noted, "We may go past neutral, but we're a long way from neutral at this point, probably."
Following last month's FOMC meeting, the market knew the Fed still has a tightening bias, yet the timing of the stark reminder from the Fed chairman mattered knowing interest rates had already moved up sharply ahead of the comment.
At this juncture, it has served as an excuse to keep the selling pressure on in the Treasury market, which is cognizant that Friday's Employment Situation Report for September has the potential to upset things further if it shows a further increase in average hourly earnings on a year-over-year basis.
The Treasury market, therefore, will be biding its time today nervously and that could be enough to keep the stock market in check.
The weekly initial claims report offered the latest reminder that the labor market remains tight and conducive to an increase in wage growth. To that end, initial claims for the week ending September 29 decreased by 7,000 from the prior week to 207,000 (Briefing.com consensus 210,000) while continuing claims for the week ending September 22 decreased by 13,000 to 1.650 million.
The Factory Orders Report for August (Briefing.com consensus +1.8%; prior -0.8%) will be released at 10:00 a.m. ET.
Aside from the interest rate factor, trade tension with China appears to be acting as a bit of a sticking point in the early going, too.
There are press reports indicating Vice President Pence will give a speech at 11:00 a.m. ET in which he'll accuse China of meddling with the 2018 midterm election. That won't be pleasing to Chinese officials, which just crates a sense in the market that the U.S. and China seem destined to remain entrenched in their trade battle.
These matters are overshadowing corporate news, like the all-stock merger between Hortonworks (HDP) and Cloudera (CLDR), yet that is understandable, particularly in the case of interest rates, which are a key driver of the stock market and economic activity.