Wall St poised for weak open as rate worries keep Treasury yields elevated

WALL Street’s main indexes were on track for a lower open on Tuesday as investors continued to grapple with the prospects of a prolonged restrictive monetary policy by the Federal Reserve and its subsequent impact on the economy.

Adding to investor anxiety was the likelihood of a partial shutdown of the U.S. government by Sunday, which, according to ratings agency Moody’s, is likely to be a “credit negative”.

“A polarized political environment, uncertainty on macroeconomic conditions, and then you throw a government shutdown on top of it will create a gray area where there’s no clear path,” said Chris Giamo, head of commercial banking at TD Bank.

At 8:15 a.m. ET, Dow e-minis were down 111 points, or 0.32%, S&P 500 e-minis were down 15.5 points, or 0.35%, and Nasdaq 100 e-minis were down 54.5 points, or 0.36%.

Megacap growth stocks including Apple, Microsoft, Meta Platforms, Amazon.com and Tesla lost between 0.2% and 0.7% in premarket trading.

All three major U.S. stock indexes are set to log quarterly declines for the first time this year heading into the last trading days of September.

Pressuring equities, the benchmark two- and 10-year Treasury yields have scaled multi-year highs after the Fed’s hawkish longer-term rate outlook, a stance also projected by other major central banks.

“There’s so much uncertainty in the market… interest rates at this (high) level and when will they go lower are the biggest drivers,” Giamo added.

Traders’ bets on the benchmark rate remaining unchanged in November and December stood close to 76% and 61%, respectively, according to CME’s FedWatch tool. Meanwhile, a 25-basis-point rate cut is being priced in as early as March, growing to over 33% in June and July.

A Goldman Sachs report showed hedge funds increased their bearish bets mainly on U.S. stocks last week, with clients mostly adding short positions and getting rid of long positions. Consumer discretionary, industrials and financials were the most net sold.

Investors will keep an eye out for the consumer confidence index for September and a report on new home sales for August, due after the opening bell.

Through the week, data including on durable goods, the personal consumption expenditures price index for August and second-quarter gross domestic product will be monitored for clues on inflation and the economic outlook.

Remarks by Fed policymakers such as Chair Jerome Powell will also be on investors’ watch list this week, with a handful of them already corroborating the central bank’s insistence to continue fighting against inflation above the 2% target.

Among single stocks, Moderna gained 1.1% on report the European Union is in talks with the company over a new procurement deal for its COVID-19 vaccines.

Immunovant surged 63.2% after the drug developer said its antibody treatment succeeded in an early-stage trial. Roivant Sciences, the company’s largest shareholder as per LSEG data, was up 15.2%.

Sirius XM Holdings dropped 5.7% following Liberty Media’s combination proposal with the satellite and online radio company. – Reuters