Stock futures falter ahead of Fed Beige Book report

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By Will Horner

U.S. equity futures paused on Wednesday, suggesting major indices would be cut at the opening bell as investors waited for new information on the economic rebound and rising inflation.

Futures contracts linked to the large S&P 500 index have fluctuated between gains and losses. The broad gauge of the market ended fairly flat on Tuesday. Futures on the Nasdaq-100 edged down 0.2% on Wednesday, suggesting tech stocks could dip on the open.

The major indexes, which are near their all-time highs thanks to unprecedented fiscal and monetary support, faltered earlier in the month as investors scoured new data to justify the high valuations of many stocks. Manufacturing data on Tuesday indicated an expansion in factory activity driven by demand for goods, but also highlighted growing supply bottlenecks.

“It will be increasingly difficult for markets to surprise on the upside,” said Willem Sels, global investment manager at HSBC Private Bank. “The tide that lifted all the boats is no longer so strong.”

Companies that are more sensitive to the economy are likely to perform well, such as banks and companies fueled by consumer spending, according to Sels. It also favors actions that will benefit from government spending on infrastructure and sustainability. Concerns that the Fed could cut quantitative easing measures due to inflationary pressures are likely to continue to cause unease in markets, he added.

“There will be data points coming out in the coming weeks that are very strong, and they will indicate inflationary pressures,” Sels said. “More and more people will wonder if the Fed will hold its position or change, and that will inevitably lead to volatility.”

In bond markets, the yield on the 10-year US Treasury bill edged down to 1.606% from 1.613% on Tuesday. Yields fall when bond prices rise.

Investors are also watching the surge in commodity prices, which is fueling these inflationary concerns and weighing on sentiment, said Esther Baroudy, senior portfolio manager at State Street Global Advisors.

“You have a very, very big recovery going on and it’s driving up commodity prices everywhere,” she said. “Much of it is being driven by a roaring economy in the United States. The manufacturing side of the economy, for example, is absolutely on fire.”

The Fed’s Beige Book report, due at 2 p.m. ET, will offer insight into the state of business and the current economic situation. Investors will seek information on how companies are coping with rebounding consumer demand and supply bottlenecks.

Abroad, the Stoxx Europe 600 rose 0.2%, on track to record a new closing record.

Major Asian stocks were mixed as the market closed. Japan’s Nikkei 225 rose 0.5%, while Hong Kong’s Hang Seng index fell 0.6%. In mainland China, the Shanghai Composite Index fell 0.8%.

Write to Will Horner at [email protected]

(END) Dow Jones Newswires

06-02-21 0535ET

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