S&P 500, Nasdaq set for lower open as Fed takes center stage

(Reuters) – The S&P 500 and the Nasdaq were set to drop at the open on Wednesday as U.S. bond yields spiked ahead of the Federal Reserve’s policy statement which could provide hints on whether the central bank would raise interest rates sooner than expected.

FILE PHOTO: The front facade of the New York Stock Exchange (NYSE) is seen in New York, U.S., March 1, 2021. REUTERS/Brendan McDermid

The benchmark 10-year yield ticked up to a new 13-month high of 1.671%, denting demand for some high-growth technology stocks and pressuring futures tied to the tech-heavy Nasdaq 100 by about 1%.

Fears that massive stimulus would overheat economy has triggered a rapid spike in long-duration Treasury yields, derailing Wall Street’s main indexes from their peaks last month.

The Fed is expected to issue a blowout GDP forecast for 2021 at the end of a two-day meeting on Wednesday at 2 p.m. ET (1800 GMT). It will be followed by Fed Chair Jerome Powell’s news conference shortly after, where he is likely to reassure the economy can take off without generating excessive inflation.

While the Fed has reiterated it will remain dovish till the labor market fully recovers, some policymakers could hint at an increase in rates in 2023. Some investors and economists are betting on even earlier rate hikes, with Morgan Stanley predicting a tightening of monetary policy early next year.

“I don’t think the Fed is going to change their stance but even if they are too strong about the economy, it could spook markets so it’s a very fine line,” said Eric Diton, president and managing director of the Wealth Alliance in New York.

The S&P 500 and the Dow started off the week at all-time closing highs while the Nasdaq has recovered more than half of its losses since confirming a correction last week on optimism over the latest round of fiscal stimulus and vaccinations.

At 8:29 a.m. ET, Dow E-minis were up 30 points, or 0.09%, S&P 500 E-minis were down 13 points, or 0.34% and Nasdaq 100 E-minis were down 148.25 points, or 1.13%.

Apple Inc, Facebook Inc, Netflix Inc and Microsoft Corp slipped between 0.2% and 0.6% in premarket trading in a continuation of a rotation out of high-flying companies into last year’s laggards including financials, industrials and materials.

“The play is value … as the economy picks up, there is a lot more leverage in earnings growth for cyclical companies,” Diton added.

Fast-food retailer McDonald’s gained nearly 1% after Deutsche Bank raised its target price on the stock and also upgraded its recommendation to “buy” from “hold”.

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