Index Futures Fall, Dollar Rallies As Labor Market Strength Dampens Fed Rate Cut Speculation

Equity futures took a sharp downturn moments after the release of the latest jobs report, which unveiled an unexpected strength in the U.S. labor market for November.

According to the report from the Bureau of Labor Statistics, non-farm payrolls (NFPs) expanded by 199,000 in November, surpassing the 150,000 reported for October and exceeding the projected 180,000. The unemployment rate surprisingly declined to 3.7%, the lowest since July, down from 3.9%.

Traders are now questioning whether their aggressive bets on Federal Reserve rate cuts in 2024 have gone too far, as more than five rate cuts were priced in by December. The unexpectedly robust labor market performance could potentially keep the Federal Reserve in a more tight stance for longer.

As per the CME Group FedWatch tool, traders have adjusted their expectations for a Federal Reserve rate cut in March 2024, with the current pricing indicating a 49% chance of that scenario. The probability of five rate cuts by December 2024 declined from 72% ahead of the release to 57%.

At 08:45 a.m. in New York, Nasdaq 100 futures declined by 0.4%, while contracts for the S&P 500 and the Dow were down by 0.2% and 0.1%, respectively. Small cap futures rallied 0.7%.

The dollar index (DXY), tracked by the Invesco DB USD Index Bullish Fund ETF UUP, strengthened, and Treasury yields increased. The 10-year yield rose by 8 basis points to 4.23%, while gold saw a 0.2% decline.

Crude rallied 1.9%, with the WTI trading above $70 a barrel, following its sharp slowdown over the past weeks.

US Futures Performance On Friday

In premarket trading on Tuesday, the SPDR S&P 500 ETF Trust SPY edged down 0.1% to $458.01 and the Invesco QQQ ETF QQQ eased 0.4% to $389.16, according to Benzinga Pro data.

The CBOE Volatility Index, or VIX, is trading 0.7% lower to 12.97.

Economic Data To Watch

• The University of Michigan is set to release its preliminary Consumer Sentiment Survey for December at 10:00 a.m. ET. Analyst estimates suggest a marginal decrease in the overall index, dropping from 62 to 61.3.
  
• Year-ahead and long term inflation expectations were at 4.5% and 3.2%, respectively, in November.

Stocks To Watch

• Carrier Global Corp. CARR experienced a 6% increase in premarket trading after U.S. industrial firm Honeywell International Inc. HON announced on Friday its intention to acquire Carrier’s security business for $4.95 billion. Honeywell’s stock was 2.55% lower in response to the news.
• Roblox Corp. RBLX and Paramount Global PARA were both 5% higher.
• Lululemon Athletica Inc. LULU saw a 2% decline as the company provided a less optimistic outlook for the fourth quarter, even though it reported quarterly results that exceeded expectations.
• First Solar Inc. FSLR was over 3% higher, after Morgan Stanley upgraded the stock from Marketweight to Overweight, and raised its price target from $214 to $237.
• Advanced Micro Devices Inc. AMD inched 0.3% higher in the premarket, after surging as much as 9.9% on Thursday on positive AI-related news.
• Applied UV Inc. AUVI witnessed a 20% drop, as the company announced its intention to carry out a 1-for-25 reverse stock split of its common shares.
• HashiCorp Inc. HCP tumbled 23% following the disclosure of CEO and chair David McJannet‘s sale of 200,000 shares of the company.

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