Stock futures opened higher Wednesday evening heading into the final session of September and the third quarter, with investors continuing to eye moves in Treasury bond yields and debates in Washington as a possible government shutdown looms.
Contracts on the S&P 500 ticked above the flat line. The index was on track to post its first monthly decline since January, with concerns around fiscal and monetary policy, inflation, regulations in China and the ongoing pandemic all colliding to knock equities from their upward trajectory. Still, the S&P 500 remained up by more than 16% for the year-to-date through Wednesday’s close.
Cyclical stocks led the way higher in September, as investors bet on higher inflation and rising rates. A jump in crude oil prices helped make the energy sector by far the best performer in the S&P 500. Financial stocks also outperformed, with rising Treasury yields serving as a tailwind to bank profitability.
The Nasdaq has underperformed over the past month as traders rotated away from the growth and technology stocks that pulled the market higher last year. High-flying technology stocks also got hit as Treasury yields jumped over the past week, with the rising borrowing costs serving as a headwind to shares of growth companies that are valued heavily on expectations of strong future earnings.
Even given the dip in U.S. stocks in recent weeks, the indexes are still not far from their record highs. As of Wednesday’s close, the S&P 500 was off by about 4% from its all-time closing high from Sept. 2.
“We haven’t had even a 5% pullback since October of last year. It’s going to be a year. This feels a lot worse than it actually is because we haven’t had much volatility since last October, last September,” Paul Schatz, Heritage Capital President, told Yahoo Finance Live on Wednesday.
“But remember, all the reasons why we’re going down — nothing is new,” he added. “You’ve got the debt ceiling and the government shutdown and Evergrande and inflation. All known things. None of these are going to befall the bull market or cause a recession. There’s always some kind of short-term thing the market focuses on to get a pullback going. We’ve got it. I think it’s one you buy with both hands in the next week or so, and I think we’re going strongly to new highs in Q4.”
Other pundits, however, were less upbeat on stocks given the medley of concerns.
“We think there are several other headwinds, not directly related to [the Fed’s asset-purchase] tapering, that might weigh on the stock market for a while,” Thomas Mathews, markets economist for Capital Economics, wrote in a note on Wednesday. “Among other things, we think its valuation is already fairly stretched, that there is limited scope for further upward revisions to earnings estimates given how far they have come, and that long-dated bond yields may rise for other reasons than tapering.”
“As a result, we expect the US stock market to make fairly limited gains over the next couple of years,” he added.
Thursday night also marks the deadline for Congress to come to an agreement to fund the government beyond the Sept. 30 fiscal year, or else risk a shutdown taking place beginning on Friday. Senate Majority Leader Chuck Schumer said the chamber could vote as early as Wednesday on legislation that would extend the funding, and then send the bill to the House and to President Joe Biden for approval.
6:15 p.m. ET Wednesday: Stock futures rise
Here were the main moves in markets as of Wednesday evening:
S&P 500 futures (ES=F): 6.5 points ( 0.15%), to 4,356.25
Dow futures (YM=F): 51 points ( 0.15%), to 34,316.00
Nasdaq futures (NQ=F): 22 points ( 0.15%) to 14,761.75
Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter