NASDAQ Composite Lower on Cautious Fed Remarks on Inflation

The major U.S. stock index futures are trading lower on Monday but clawing back most of there earlier losses as they approach breakeven shortly before the cash market opening.

At 13:46 GMT, the blue chip Dow Jones Industrial Average futures contract is trading 33738.00, down 25.00 or -0.07%, the benchmark S&P 500 Index futures contract is at 3991.75, down 8.50 or -0.21% and the tech-weighted NASDAQ Composite futures contract is trading 11794.50, down 53.50 or -0.45%.

Early Gains Capped by Fed Member’s Warning

Nonetheless, the price action suggests investors are being cautious and a bit tentative, following hawkish remarks from Federal Reserve Governor Christopher Waller on Sunday.

Waller spooked investors a bit when he said that markets should now pay attention to the “endpoint” of rate increases, not the pace of each move, and the endpoint is likely “a ways off”.

The comments from Waller, a voting member of the rate-setting committee this year, follow lighter-than-expected inflation data for October that led to a euphoric market rally last week, with the benchmark S&P 500 Index posting its biggest weekly percentage gains in about five months.

“We’re at a point we can start thinking maybe of going to a slower pace,” Waller said, but “we’re not softening…Quit paying attention to the pace and start paying attention to where the endpoint is going to be. Until we get inflation down, that endpoint is still a ways out there.”

Traders Eyeing Treasury Yields Rise

A rise in U.S. Treasury yields overnight also caught the attention of stock market traders as the markets scanned Federal Reserve speaker remarks and recent U.S. inflation figures for hints about the central bank’s policy plans.

On Monday, the yield on the policy-sensitive 2-year Treasury was 7 basis points higher at 4.403%. The benchmark 10-year Treasury yield was up by 6 basis points at 3.895%, remaining below the key 4% level.

Both had plummeted on Thursday, dropping by around 30 and 32 basis points, respectively. The steep plunge in yields rocketed U.S. stock indices higher.

Key NASDAQ Composite Shares Mixed Ahead of Opening

A mixed performance from Advanced Micro Devices and Amazon.com is contributing to the NASDAQ Composite’s sideways-to-lower trade early Monday.

Chip maker Advanced Micro Devices’ stock rose 3.2% in the premarket session after receiving upgrades at both Baird and UBS. The firms cited positive industry cyclical trends as well as strong demand by data center equipment manufacturers for AMD’s Genoa Chip, CNBC reported.

Amazon.com fell 1.7% in premarket trading after Bank of America removed the stock from its “US 1” list, although it maintained a “buy” rating.

Short-Term Outlook

The major stock indices are likely to remain underpinned by expectations of a slowdown in Federal Reserve rate hikes, but gains are likely to be limited as traders contemplate the Fed’s terminal rate and potential exit strategy.

Traders are likely to be guided over the short-run by the overnight comments from Federal Reserve member Christopher Waller who said that investors should now pay attention to the “endpoint” of rate increases, not the pace of each move, and the end point is likely “a ways off”.

Last week’s huge rally was primarily fueled by investor concerns about the size of the Fed’s December rate hike, nearly locking in an increase of 50 basis points. As Waller stated in his speech, investors may have overreacted to the tepid consumer inflation data. Profit-takers could hit the markets if investors take notice of the endpoint of the Fed rate hikes.