Recession worries were roaring back into the spotlight for Wall Street on Wednesday, with equity futures and oil prices dropping, as investors looked ahead to Congressional testimony from Federal Reserve Chairman Jerome Powell.
How are stock-index futures trading?
- S&P 500 futures ES00, -1.80% dropped 1.6%, to 3,707
- Dow Jones Industrial Average futures YM00, -1.56% dropped 437 points, or 1.4%, to 30,086
- Nasdaq-100 futures NQ00, -2.03% fell 1.8% to 11,366
Following a long holiday weekend, the Dow Jones Industrial Average DJIA, +2.15% rallied 641.47 points, or 2.2%, to finish at 30,530.25 on Tuesday. The S&P 500 SPX, +2.45% rose 2.5% to 3,764.79, and the Nasdaq Composite COMP, +2.51% climbed 2.5%, to finish at 11,069.30.
Those gains followed the worst week for the S&P 500 in two years, with the Dow and Nasdaq also suffering sharp losses.
What’s driving the market?
The pullback looming for Wall Street stocks was unlikely to come as a surprise to strategists who were saying Tuesday that the rebound was nothing more than an oversold bounce. Asian equities largely ignored the U.S. rally and oil prices fell, as investors refocused on recession worries and expectations for continued tighter monetary.
Strategists at some of Wall Street’s biggest banks were heard warning clients to start the week that markets were still not correctly pricing in the likelihood of recession.
“The bear market will not be over until recession arrives or the risk of one is extinguished,” said Morgan Stanley’s chief U.S. equity strategist Mike Wilson in a note on Tuesday. He said another 15% to 20% drop should be expected, taking the S&P 500 to 3,000.
Investors will be scanning comments from Fed Chairman Powell for more monetary policy clues as he testifies in front of the Senate Banking Committee starting at 9:30 a.m. Eastern Time.
“The FOMO [fear of missing out] gnomes of Wall Street will be desperately looking for signs he is blinking on tightening so that they can rush back into their buy-the-dip happy place,” Jeffrey Halley, senior market analyst at OANDA, told clients in a note.
Other Fed speakers are also lined up for Wednesday, including Philadelphia Fed President Patrick Harker, via an interview at 9 a.m. Eastern, Chicago Fed President Charles Evans at 12:50 p.m. Eastern and Harker and Richmond Fed President Tom Barkin who will jointly appear on a panel discussion at 1:30 p.m. Eastern.
While stocks were set to fall, money was flowing into traditional havens such as bonds and the dollar. The yield on the 10-year Treasury note TMUBMUSD10Y, 3.235% fell 7 basis points to 3.228%, while the ICE Dollar Index DXY, +0.21%, which measures the dollar against a basket of major currencies, rose 0.4% to 104.91.
U.S. crude prices CL.1, -4.54% dropped 5% to $103.39 a barrel, with Brent BRN00, -4.08% down close to that at $109.27 a barrel, with both more than giving back Tuesday’s rise. In addition to demand worries fueled by recession concerns.