U.S. Stocks May See Further Downside As Interest Rate Uncertainty Resurfaces

After starting the new year on a downbeat note, stocks may see continued weakness in early trading on Wednesday. The major index futures are currently pointing to a lower open for the markets, with the S&P 500 futures down by 0.4 percent.

Concerns investors have become too optimistic about the likelihood of near-term interest rate cuts may weigh on the markets ahead of the release of the minutes of the Federal Reserve’s latest monetary policy meeting later in the day.

Treasury yields are seeing further upside ahead of the release of the minutes amid worries Fed officials will signal a more cautious approach to future rate decisions.

The yield on the benchmark ten-year note is moving higher for the fourth consecutive session after falling to its lowest levels in over five months a week ago.

Ahead of the release of the minutes Richmond Federal Reserve Tom Barkin said the U.S. economy heading for a soft landing is “increasingly conceivable but in no way inevitable.”

“The airport is on the horizon. But landing a plane isn’t easy, especially when the outlook is foggy, and headwinds and tailwinds can affect your course,” Barkin said in prepared remarks to the Raleigh Chamber of Commerce: Launch 2024. “It’s easy to oversteer and do too much or understeer and do too little.”

Barkin also noted the U.S. economy continues to defy expectations, suggesting consumer spending is unlikely to pull back as long as equity values are high and the labor market remains tight.

“Longer-term rates have dropped recently, which could stimulate demand in interest-sensitive sectors like housing,” Barkin said. “While you might think this would be a first-class problem, strong demand isn’t the solution to above-target inflation. That’s why the potential for additional rate hikes remains on the table.”

Shortly after the start of trading, the Institute for Supply Management is scheduled to release its report on manufacturing activity in the month of December.

The ISM’s manufacturing PMI is expected to…