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Market Snapshot: U.S. stocks turn lower as inflation remains in focus, Fed quantitative tightening kick off

U.S. stock index futures were mostly higher on Wednesday, as a new month of trading kicked off, along with the start of the reduction by the Federal Reserve of its $9 trillion balance sheet.

How are stock-index futures trading?

S&P 500 futures
ES00,
+0.17%

rose 0.2% to 4,140.25

Dow Jones Industrial Average futures
YM00,
+0.41%

rose 155 points, or 0.4%, to 33,127

Nasdaq-100 futures
NQ00,
-0.03%

were flat at 12,646

On Tuesday, the Dow industrials
DJIA,
-0.67%

fell 222.84 points, or 0.7%, to close at 32,990.12, snapping six-straight sessions of wins. The S&P 500 
SPX,
-0.63%

fell 0.6% to 4,132.15, and the Nasdaq Composite 
COMP,
-0.41%

finished down 0.4% at 12,081.39, with both indexes snapping three consecutive days of gains.

What’s driving the market?

Investors are waiting to see if last week’s bounce for stocks will hold, with Tuesday’s losses coming amid higher Treasury yields and oil prices. The yield on the 10-year Treasury 
TMUBMUSD10Y,
2.864%

 note rose 3 basis points to 2.874% on Wednesday, according to Dow Jones Market Data.

U.S. crude oil prices
CL.1,
+1.61%

gained another 1.5% and international benchmark Brent
BRN00,
+1.62%

rose 1.7% Wednesday. Oil prices rose Tuesday after the EU slapped new sanctions on Russian crude, but prices then pulled back after The Wall Street Journal reported some members of the OPEC were considering suspending Russia from oil-production targets.

U.S. economic data will swing into focus Wednesday with a May update on the Institute for Supply Management’s manufacturing index due at 10 a.m. ET along with the S&P Global final reading of its purchasing managers’ index for the manufacturing sector.

“The pressure on the equity markets may pick back up, somewhat ironically, if US data through Friday’s May jobs report, and the May ISM Services suggest that U.S. growth is humming along at a solid clip, taking US yields back toward cycle highs,” said a team of strategists at Saxo Bank, in a note to clients.

As well, investors will be keeping an eye on the liquidity impact of shrinking of the Fed’s massive balance sheet, which starts Wednesday and is aimed in part at helping fight high inflation.

“Uncertainty on the impacts of Fed QT that kicks off today and ramps up to full force over the next three months to a pace of $95 billion/month could also prove a factor weighing on sentiment,” added the Saxo Bank strategists.

Read: Fed’s quantitative tightening is about to arrive: What that might mean for markets

Elsewhere, Atlanta Fed President Raphael Bostic told MarketWatch in an exclusive interview on Tuesday that any September “pause” in the central bank’s push to raise interest rates shouldn’t be construed as a “Fed put,” or sign that the central bank will come to the rescue of markets.

On Monday, Fed Gov. Christopher Waller pushed back on the idea of a pause in September, saying he favored half-point rate hikes at the next “several meetings.”

Ahead for Wednesday, St. Louis Fed President James Bullard is due to speak at 1 p.m. Eastern Time and the Fed’s Beige book of economic conditions will be released at 2 p.m. Eastern.

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