Stock futures are down as traders mull prospects of upper rates

Stock futures were down Tuesday as concern over higher rates lingered amongst traders awaiting comments from a closely followed Federal Reserve leader.

Futures tied to the Dow Jones Industrial Average shed 130 points, or 0.4%. S&P 500 futures fell also fell 0.4%, while Nasdaq-100 futures dropped 0.6%.

Atlanta Fed President Raphael Bostic said Monday that rates of interest should rise above 5% and stay there for a “very long time.” Meanwhile, San Francisco Fed President Mary Daly said the central bank should proceed raising rates, albeit at a slower pace. Treasury yields rose barely on Tuesday.

Those comments got here ahead of a speech by Fed Chair Jerome Powell slated for 9 a.m. ET Tuesday. Investors will parse his comments for tea leaves into how the Fed will respond next in its try and cool inflation.

Investors got here into the brand new 12 months anxious that higher Fed rates could tip the economy right into a recession. Nonetheless, many look like mounting bets that inflation is beginning to ease.

The Nasdaq Composite on Wednesday posted a 0.6% gain, helped by a 6% rally in Tesla. Meanwhile, the Dow erased a 304-point gain and ended down almost 113 points, while the S&P fell 0.1%.

Monday also marked the top of the primary five trading days of 2023, during which the S&P 500 gained 1.1%. In response to a classic stock market indicator, that sort of early strength could bode well for the remaining of the 12 months.

Tom Lee of Fundstrat called it a “strong omen” and said the market is ready up for a 20% rally this 12 months.

The Fed wants financial conditions “to remain tight,” Lee said on CNBC’s “Closing Bell: Extra time.” “Dollar, stocks, bonds – all the pieces’s sort of easing in order that they’re probably slightly anxious and so they wish to ensure inflation is in actual fact dead. But certainly one of the changes especially since October is that inflation has been under shooting.”

Depending on how CPI data fares Thursday, the bond market could push the Fed to make February the last rate hike before cuts, Lee added. Investors can even watch Friday for large bank earnings and consumer sentiment data.