Quick Read
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QQQ surges 0.7% premarket as 10-year Treasury yields ease, while DIA crawls just 0.1% higher at the open.
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WTI crude near $96 acts as a consumer tax feeding inflation the Fed is fighting, capping how far yields can fall.
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The Fed’s 2 p.m. ET statement is the day’s biggest risk, with small caps most exposed through their floating-rate debt loads.
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The S&P 500 is set for a slightly higher open Friday, with the SPDR S&P 500 ETF (NYSEARCA:SPY) up 0.3% premarket near $776. Treasury yields pulling back from multiyear highs are helping. Tech leads: the Invesco QQQ Trust (NASDAQ:QQQ) is up 0.7%, while the SPDR Dow Jones Industrial Average ETF (NYSEARCA:DIA) is just moving at 0.1%.
Bond Market Relief Is Carrying Stocks
The 10-year Treasury yield fell to 5.2% Thursday from 5.3%, and the 30-year slid to 5.6%. Yields eased after the Treasury market passed a crucial test of investor confidence at a bond auction. When risk-free bonds pay above 5%, growth stock valuations contract, which is why the Nasdaq 100 benefits most when yields ease.
Policy is still tight. After a quarter-point increase over the past month, the upper end of the Fed’s target range stands at 4%. An FOMC press release is on the calendar for 2 p.m. ET, so the morning rally is still exposed to a hawkish surprise.
Oil Keeps Inflation Pressure Alive
Crude rose Thursday. That was because attacks on tankers in the Strait of Hormuz reached their highest level since the Iran war began and Hurricane Isaias threatened production along the Gulf Coast. Prices fell after President Trump vowed not to attack Iran until after the November 3 midterm elections. WTI recently traded at $96 after hitting $107 in mid-September.
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Oil this expensive works like a tax on consumers and feeds the inflation data the Fed is fighting, and that puts a ceiling on how far yields can fall.
