U.S. stocks set to open cautiously higher as investors ponder the outlook for the economy

6:30 a.m.: Temporary relief?

U.S. stocks were expected to open slightly higher on Wednesday after recent sharp falls as investors ponder the prospect of further interest rate hikes, high levels of inflation and a stronger dollar.

Futures on the Dow Jones Industrial Average were trading flat before market, while those on the broader S&P 500 index were up 0.1%, and futures on the Nasdaq-100, loaded with technology, were up 0.2%.

All three major U.S. indexes fell on Tuesday, U.S. bond yields soared and the dollar extended its rally as Americans returned from their Labor Day break, noted Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

“The S&P500 closed a few points above the closely watched 3900 mark, the major 61.8% Fibonacci retracement on the summer rally, which if cleared should point to a deeper downtrend in the medium term,” she added.

The US Federal Reserve’s recent series of interest rate hikes and its determination to fight inflation with further rate hikes has kept investors nervous as they fear economic activity in the world’s largest economy world begins to weaken. While economic data, particularly in the labor market, continues to hold up well, many expect the headline numbers to soften over the next few months.

These factors are putting stocks under pressure, although any bout of selling is likely to be tempered by a period of bargain-hunting in US markets, especially as investors seek to avoid turbulence in global markets.

Ozkardeskaya pointed out that the selling of equities has gained momentum as US companies rush to sell bonds before it gets more expensive.

She noted: “Yesterday alone, 19 American companies, including big names like Nestlé, Walmart, Target and McDonalds, issued a large amount of bonds – around 30 to 40 billion dollars – following a jump of almost 60 basis points of high-grade yields since the beginning of August.. This is the largest amount sold since September of last year.

Bond demand pushed the 2-year US Treasury yield above 3.50% and the 10-year yield above 3.35% for the first time since the June spirit, she added.

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