As July trading begins, the stock market is exhibiting a cautious tone, with traders awaiting remarks from Federal Reserve Chair Kevin Wash for direction. Currently, market expectations for a US interest rate hike are building, with the US dollar and bond yields moving higher.
At 8:03 AM New York time, S&P 500 index futures and Dow Jones futures were down 0.3%, while Nasdaq 100 futures fell 0.6%. Money markets are currently pricing in roughly a one-third probability of a rate hike at the Fed's next policy meeting.
Kevin Wash is scheduled to appear at an event in Sintra, Portugal, on Wednesday alongside central bank officials from Europe and the UK. This will mark his first public appearance overseas since becoming Fed Chair. Last month, his pledge to achieve price stability helped drive the US dollar and short-term Treasury yields higher. Traders are now looking to his latest comments for further clues on the interest rate path over the coming year.
"Given the Fed's current lack of forward guidance, the market will be highly focused on Wash's remarks," wrote ING Bank NV currency strategist Chris Turner. "A focus on price stability could continue to support the US dollar."
The stock market is taking a brief pause after the S&P 500 posted its best quarterly performance in six years. Previously, investor enthusiasm for stocks seen as beneficiaries of artificial intelligence, with chipmakers playing a key role in the rally, has waned, with many of these shares weaker in pre-market US trading. Nike fell 2% after providing a cautious outlook, while software stocks like Microsoft (MSFT) advanced.
Justin Onuekwusi, Chief Investment Officer at St. James's Place, noted that if market expectations for rate hikes intensify further, it could act as a catalyst for a pullback, particularly for technology stocks which are priced on expectations of future earnings.
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