U.S. stock futures are on the rise on Friday, indicating that the Dow industrials are poised for a third-straight record-setting session. However, options expiries and index rebalancing could potentially create volatility in today’s trading session.
How Stock Index Futures are Trading
- S&P 500 futures (ES00) rose 12 points, or 0.2%, to 4,786
- Dow Jones Industrial Average futures (YM00) rose 97 points, or 0.2%, to 37,740
- Nasdaq-100 futures (NQ00) rose 51.25 points, or 0.3%, to 16,805
During Thursday’s session, all three indexes recorded their sixth consecutive day of gains. The Dow industrials rose 158.11 points, or 0.4%, to close at 37,248.35. The S&P 500 rose 0.26% to 4,719.55, while the Nasdaq Composite gained 0.19% to reach 14,761.56.
Notably, all three indexes are on track to achieve weekly gains of more than 2%. The Dow industrials have also achieved back-to-back record closes and are poised for a third on Friday. The renewed investors’ interest in stocks comes as a result of this week’s Federal Reserve meeting, where officials surprised many by indicating that interest rates have already peaked and announced planned rate cuts for 2024.
On the other hand, the S&P 500 is just 1.6% away from its previous record close in January 2022. Meanwhile, the yield on the 10-year Treasury note (BX:TMUBMUSD10Y) has fallen to a July low of 3.91%, reflecting a rally in the bond market during this week.
According to Stephen Innes, the managing partner at SPI Asset Management, there may be a reality check soon, as many people believe that the market has surged too quickly due to the anticipated rate cuts.
“However,” he adds, “with $6 trillion of dry powder sitting in money market funds that might be eager to invest in stocks, it should at least keep short sellers cautious.”
Volatility Expected as Options Contracts Expire
Investors should prepare for a potentially volatile session on a “triple-witching” Friday as options contracts worth over $5 trillion tied to stocks, exchange-traded funds, and indexes are set to expire. This expiration will likely prompt investors to make final adjustments to their portfolios as the quarterly rebalancing of the S&P 500 and Nasdaq-100 will kick in after the market closes.
Key Data Releases
In addition to the expiration of options contracts, there are key data releases scheduled for the day. At 8:30 a.m., the Empire State manufacturing survey for December will be released, providing insights into the current state of the manufacturing sector. Following that, at 9:15 a.m., industrial production and capacity utilization data will be made available.
Contrasting Central Bank Actions
While the Federal Reserve has maintained its stance, keeping interest rates unchanged, the Bank of England and the European Central Bank have also decided to leave rates untouched. ECB President Christine Lagarde emphasized that rate cuts would not be considered until there is conclusive data indicating their necessity.
Pressure on Lagarde
However, fresh economic data from Europe suggests that Lagarde may face increasing pressure in the new year. Germany’s composite purchasing managers index for December fell to a weaker-than-expected 46.7, and French PMI data also disappointed with a fall to 43.7. As a result, German bunds declined, and the euro weakened against other major currencies.
Positive Momentum for Hong Kong Stocks
On a positive note, Hong Kong stocks experienced a significant increase of over 2%. The People’s Bank of China injected $112 billion in one-year loans into the economy, alleviating concerns about a potential cash shortage. This move comes alongside the relaxation of home-buying rules in major Chinese cities as a means to bolster the housing market.
Despite some relief among investors, there is a consensus that further decisive actions may be necessary. While there are early signs of potential improvement, caution remains advised.