Renewed Interest Rate Worries May Weigh on US Stocks

By Investors Hub

The major U.S. index futures are pointing to a lower opening on Thursday, with stocks likely to extend the pullback seen in afternoon trading on Wednesday.

A jump in U.S. treasury yields sapped buying interest in the previous session, and the major averages subsequently pulled back well off their best levels but managed to end the day in positive territory.

The ten-year yield spiked to its highest level in over seven years following the release of upbeat employment and service sector data, leading to concerns about aggressive rate hikes by the Federal Reserve.

In remarks at the Atlantic Festival in Washington, D.C. after the close of trading, Fed Chairman Jerome Powell told Judy Woodruff of PBS that interest rates are ?a long way from neutral? even after recent increases.

?The really extremely accommodative low interest rates that we needed when the economy was quite weak, we don’t need those anymore. They?re not appropriate anymore,? Powell said.

?Interest rates are still accommodative, but we?re gradually moving to a place where they will be neutral,? he added. ?We may go past neutral, but we’re a long way from neutral at this point.?

Overall trading activity may be somewhat subdued, however, as traders may be reluctant to make significant moves ahead of the release of the Labor Department?s closely watched monthly jobs report on Friday.

Stocks saw notable strength in morning trading on Wednesday before giving back some ground in the afternoon. Despite the pullback by the major averages, the Dow still ended the session at a new record closing high.

The major averages closed in positive territory but well off their best levels of the day. The Dow rose 54.45 points or 0.2 percent to 26,828.39, the Nasdaq climbed 25.54 points or 0.3 percent to 8,025.08 and the S&P 500 inched up 2.08 points or 0.1 percent to 2,925.51.

Upbeat economic data contributed to the early strength on Wall Street, although buying interest waned as the data also raised concerns about the outlook for interest rates.

Before the start of trading, payroll processor ADP released a report showing stronger than expected private sector job growth in the month of September.

ADP said private sector employment jumped by 230,000 jobs in September after climbing by an upwardly revised 168,000 jobs in August. Economists had expected employment to increase by about 185,000 jobs.

“The labor market continues to impress,” said Ahu Yildirmaz, vice president and co-head of the ADP
Research Institute. “Both the goods and services sectors soared.”

“The professional and business services industry and construction served as key engines of growth,” she added. “They added almost half of all new jobs this month.”

On Friday, the Labor Department is scheduled to release its more closely watched monthly jobs report, which includes both public and private sector jobs.

The report is expected to show employment climbed by about 188,000 jobs in September after jumping by 201,000 jobs in August.

A separate report from the Institute for Supply Management showed an unexpected acceleration in the pace of growth in U.S. service sector activity in September.

The ISM said its non-manufacturing index climbed to 61.6 in September from 58.5 in August, with a reading above 50 indicating growth in the service sector. Economists had expected the index to dip to 58.0.

With the unexpected increase, the ISM said the non-manufacturing index reached its highest level since the inception of the composite index in 2008.

Financial stocks turned in some of the market’s best performances on the day, as treasury yields soared following the upbeat economic data. The ten-year yield reached its highest level in seven years.

Reflecting the strength in the financial sector, the NYSE Arca Broker/Dealer Index and the KBW Bank Index surged up by 1.6 percent and 1.5 percent, respectively.

Significant strength was also visible among energy stocks, which moved higher along with the price of crude oil.

On the other hand, gold stocks came under pressure on the day after ending the previous session sharply higher. After surging up by 3.6 percent on Tuesday, the NYSE Arca Gold Bugs Index dropped by 1.4 percent.

Interest rate-sensitive utilities, housing, and commercial real estate stocks also moved to the downside amid the jump by treasury yields.