U.S. stock futures rose on Friday, while the Dow was poised for a third straight record session, although options expiration and index rebalancing could make for a volatile session.
How stock index futures are traded
-
S&P 500 futures ES00,
+0.27%
rose 12 points, or 0.2%, to 4,786 -
Dow Jones Industrial Average futures YM00,
+0.29%
rose 97 points, or 0.2%, to 37,740 -
Nasdaq-100 futures NQ00,
+0.32%
rose 51.25 points, or 0.3%, to 16,805
On Thursday, all three indices recorded their sixth consecutive winning session. The Dow Industrials DJIA rose 158.11 points, or 0.4%, to end at 37,248.35, the S&P 500 SPX rose 0.26% to 4,719.55 and the Nasdaq Composite COMP gained 0.19% to 14,761, 56.
What drives the markets?
All three indexes are on track for weekly gains of more than 2%, but the Dow Industrials has posted back-to-back record closes and was on track for a third on Friday. The renewed interest in stocks in the final days of 2023 has been fueled by this week’s Federal Reserve meeting, where officials surprised investors by signaling that rates had peaked and mapping out rate cuts for 2024.
The S&P 500, meanwhile, is 1.6% away from the last record close in January 2022. The yield on the 10-year Treasury bond BX:TMUBMUSD10Y hovered at a July low of 3.91% as the bond market rallied has recovered. this week.
Stephen Innes, managing partner at SPI Asset Management, said: “There will undoubtedly be a temperature check as so many people think the market has gone too far beyond its limits in terms of the pace of rate cuts.”
“That said, with $6 trillion worth of dry powder in money market funds that may be ready to take a dip into stocks, this should at least keep short sellers wary,” he said.
Investors could see a more volatile session on a “triple-witching” Friday, when options contracts tied to more than $5 trillion in stocks, exchange-traded funds and indexes are set to expire. Money managers will also need to finalize changes to their positions as the quarterly rebalancing of the S&P 500 and Nasdaq-100 will begin after the market closes on Friday.
Data is also available, with the Empire State manufacturing survey for December at 8:30 a.m. and industrial production and capacity utilization at 9:15 a.m.
The Fed’s position was completely different from that of the Bank of England and the European Central Bank, which left interest rates unchanged on Thursday. ECB President Christine Lagarde also said interest rate cuts will not be considered “until the data proves convincing.”
But new economic data from Europe suggested Lagarde may come under more pressure in the new year. German Bunds fell BX:TMBMKDE-10Y and the euro EURUSD,
weakened after new data showed Germany’s composite purchasing managers index fell to a weaker-than-expected 46.7 in December, while French PMI data also disappointed, falling to 43.7.
Hong Kong Stocks HK:HSI,
Meanwhile, interest rates rose more than 2% after the People’s Bank of China pumped new money into the economy, providing $112 billion in one-year loans to commercial lenders.
The move will ease concerns about a possible cash shortage due to government bond issuance and follows the relaxation of home buying rules in major Chinese cities as the housing market slumps.
“Market reactions suggest that while the combination of these policies has provided relief to investors, there is consensus that more decisive action may be needed. Although there are early signs of possible improvement, caution is advised,” Innes said.