Stock Market Today: Stocks slide as rate rally pauses, bond auctions in focus

Check back for updates throughout the trading day

U.S. equity futures slipped lower Tuesday, while the dollar and Treasury yields advanced, as investors continue to look ahead to inflation data and earnings reports later in the week while repricing the chances of a spring Federal Reserve rate cut.

Updated at 8:23 AM EST

Business could be booming

The National Federation of Independent Business’s Small Business Optimism Index, a key benchmark for the largest section of U.S corporate activity, jumped firmly higher in December and topped its 2023 average, according to data published Tuesday.

That could pare calls for a near-term recession, although much will depend on the impact of Fed rate hikes, which are yet to impact the borrowing costs of smaller businesses that typically lock-in funding over longer periods of time.

"With long-term interest rates and gas prices falling, the Fed expected to ease monetary policy, employment rising, and small businesses spending on capital investments, the economy is in decent shape at the start of 2024," said Bill Adams, chief economist for Comerica Bank in Dallas.

Stock Market Today

Stocks ended their best session since November to start the week, with powerful gains for the so-called 'Magnificent 7' mega-cap tech names driving the Nasdaq to a 2.1% gain while a pullback in Treasury bond yields helped lift the S&P 500. 

The New York Fed's closely tracked survey of inflation expectations showed consumers are forecasting their softest year-ahead projections for price increases in three years, paired with a slump in global crude oil that has domestic gasoline prices testing $3 per gallon over the coming week. 

That's keeping bets on a series of Fed rate cuts alive heading into Thursday's December inflation report, as is commentary from Fed officials suggesting that policy is sufficiently restrictive to bring consumer-price pressures back to the central bank's 2% target.

"My view has evolved to consider the possibility that the rate of inflation could decline further with the policy rate held at the current level for some time," Fed Governor Michelle Bowman told a banking event in South Carolina last night. 

"Should inflation continue to fall closer to our 2% goal over time, it will eventually become appropriate to begin the process of lowering our policy rate to prevent policy from becoming overly restrictive," she added.

Traders put the chances of a March rate cut at around 57.3%, according to CME Group's FedWatch, with the odds of a follow-on move in May pegged at around 47.9%. 

Benchmark 10-year Treasury note yields were marked modestly higher heading into the start of the trading session at 4.049% as traders are eyeing the first coupon bond auctions of the year later today with a $52 billion sale of new 3-year notes.

Benchmark 2-year notes are trading at 4.383% while the U.S. dollar index, which tracks the greenback against a basket of its global peers, was marked 0.25% higher at 102.463. 

JPMorgan  (JPM) - Get Free Report will lead a parade of big-bank earnings Friday to kick off the start of the fourth-quarter-earnings season. Analysts are looking for collective S&P 500 profits to rise 5.2% from a year earlier to a share-weighted $457.2 billion.

On Wall Street, stocks are set for a softer open, with futures contracts tied to the S&P 500 indicating a 23 point opening-bell decline, following on from last night's 66 point advance. 

Futures tied to the Dow Jones Industrial Average are suggesting a 175 point decline while those linked to the Nasdaq suggest a 107 point dip at the start of trading.

In overseas markets, Europe's Stoxx 600 was marked 0.17% lower in early Frankfurt trading, matching the 0.13% decline for the regionwide MSCI ex-Japan benchmark in Asia.

Japan's Nikkei 225, meanwhile, returned to its Old Age Day holiday to rise 1.16% on the session, lifting the index to a fresh 33-year intraday high of 33,990.28 points.

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