Stock Market Recap: Stocks Retreat Amid Concerns of Overly Optimistic Fed Rate Cut Expectations

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Today, December E-Mini S&P 500 futures (ESZ23) are down by -0.48%, and December Nasdaq 100 E-Mini futures (NQZ23) are down by -0.64%.

Stock index futures opened lower this morning, influenced by rising bond yields that exerted downward pressure on stocks. T-note yields rebounded from a three-month low on Friday, fostering concerns that the market may be overly optimistic about the likelihood of the Federal Reserve cutting interest rates by Q2 2024.

Investors are eagerly anticipating reports this week on JOLTS job openings, ADP National Employment, and the monthly U.S. payrolls report. These releases will provide insights into the strength of the U.S. labor market and help gauge whether additional monetary tightening is warranted.

On the downside for stocks, energy stocks and service providers in the energy sector are experiencing declines in pre-market trading, with the price of WTI crude oil dropping more than -1% to a two-week low. Alaska Air Group is also down over -12% following its agreement to acquire Hawaiian Holdings for $1.9 billion and its removal from the S&P 500 Index.

Conversely, Science Applications International is up more than +9% after reporting Q3 revenue above consensus and raising its 2024 revenue forecast. Cryptocurrency-related stocks are also on the rise in pre-market trading, with the price of Bitcoin up more than +7% at a 19.5-month high.

Market expectations currently discount any chance of a +25 basis points rate hike at the next FOMC meeting on Dec 12-13 and at the subsequent meeting on Jan 30-31, 2024. However, there is a 68% likelihood of a -25 basis points rate cut at the March 19-20, 2024, FOMC meeting, and markets are fully pricing in a -25 basis points rate cut at the Apr 30-May 1, 2024, FOMC meeting.

U.S. and European government bond yields are mixed today. The 10-year T-note yield is up by +5.6 basis points at 4.251%. In contrast, the 10-year German bund yield fell to a 4.5-month low of 2.344%, down by -0.7 basis points at 2.355%. The 10-year UK gilt yield is up by +3.9 basis points at 4.179%.

Global stock markets are facing downward pressure. The Euro Stoxx 50, after reaching a four-month high, is slightly lower today. European stocks relinquished early gains due to weaker-than-expected economic news. The Eurozone Dec Sentix investor confidence index rose less than anticipated, and German trade news for October was worse than expected. Hawkish comments from ECB Vice President Guindos also weighed on stocks, as he expressed concerns about “very big” wage increases in the Eurozone.

Chinese and Japanese markets are experiencing moderate losses. China’s Shanghai Composite is under pressure due to concerns about a prolonged slump in the property market impacting the broader economy. In Japan, exporter stocks are declining as the Japanese yen rallied to a 2.75-month high against the dollar, impacting exporters’ earnings prospects. Advertising and chemical stocks are also facing headwinds due to weak demand outlooks and profit forecasts.

Featured Image: Freepik

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About the author: Stephanie Bedard-Chateauneuf has over six years of experience writing financial content for various websites. Over the years, Stephanie has covered various industries, with a primary focus on tech stocks, consumer stocks, health stocks, and personal finance. This stock lover likes to invest for the long-term. Stephanie has an MBA in finance.