U.S. stock futures wavered as investors awaited the Federal Reserve’s latest economic outlook and any signals on interest rates and bond purchases for the next few years.
Futures tied to the broad S&P 500 index and the Dow Jones Industrial Average were relatively flat, suggesting the benchmarks may be choppy after the market open. Both gauges posted tepid declines Tuesday, a day after closing at records. Contracts linked to the technology-heavy Nasdaq-100 edged 0.3% lower Wednesday.
Federal Reserve officials, who are scheduled to release their latest economic projections at 2 p.m. ET, are likely to say they expect the labor market and inflation to rebound faster than they anticipated in December. The central bank is broadly expected to reaffirm its commitment to ultralow interest rates and bond purchases for now.
Money managers have already started pricing in a rise in inflation, leading to a selloff in government bonds, and are betting that interest rates will start climbing by the end of next year. They have also started exiting stocks that look to be too richly valued after last year’s rally.
“Markets across the board are expensive today, and that is pinned on central bank support,” said Hugh Gimber, a strategist at J.P. Morgan Asset Management. “So this whole market is very, very sensitive to changes in central bank policy.”
A dot plot of Fed policy makers’ projections could show that some officials expect a first rate increase in 2023, Mr. Gimber said. “But the key will be communication: How will they balance this modestly brighter outlook while signaling that the Fed is still there to support markets?”
In bond markets, the yield on the benchmark 10-year U.S. Treasury note edged up to 1.644%, from 1.622% Tuesday. Yields rise as the price falls. The yield has climbed sharply from this year’s low of 0.915% on Jan. 4.
Cues and signals from Fed Chairman Jerome Powell at his press conference, which starts at 2:30 p.m., will be key for investors.
“This is about less dovish forecasts but still dovish communication, so Powell is really walking a tightrope,” Mr. Gimber said. “Powell will be using his comments to prevent an overreaction in the bond market.”
Investors have in recent weeks started reshaping their portfolios as economic prospects are bolstered by vast sums of government stimulus spending and the coronavirus vaccination rollout. That has driven bets on the beaten-down and economically sensitive sectors of the market, while a rally in highflying tech stocks has weakened.
Traders worked on the floor of the New York Stock Exchange on Tuesday.
Photo:
Colin Ziemer/Associated Press
“Markets have basically run about as far as they can in anticipating the 2021 recovery. For the most part, the market has seen what it wants to see,” said Tim Courtney, chief investment officer at Exencial Wealth Advisors. “It is all based on the interest rates right now: We are entering into an economic recovery and rates are normalizing and moving higher and that will favor those economically sensitive companies.”
Ahead of the meeting, investors will also parse data on U.S. housing starts for clues on the strength of the economy. The figures, which are due at 8:30 a.m. ET, are expected to show new residential building projects fell slightly in February from the previous month.
Brent crude, the international benchmark for oil, fell 0.8% to $67.87 a barrel.
In overseas markets, the Stoxx Europe 600 edged 0.4% lower.
In Asia, most major indexes were little changed by the close of trading. South Korea’s Kospi index fell 0.6%, while the Shanghai Composite, Hang Seng and Nikkei 225 indexes all ended the day largely flat.
Write to Will Horner at William.Horner@wsj.com
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