Nasdaq, S&P, Dow futures jump as 2-year Treasury yield tests 4%

Spencer Platt

Stock index futures point to continued strength Tuesday following as strong rally in the previous session to kick off the fourth quarter, with rates continuing to decline.

Nasdaq 100 futures (NDX:IND) +1.9%, S&P futures (SPX) +1.5% and Dow futures (INDU) +1.2% are rallying.

Renewed buying has seen speculation of a stock market bottom rising and hopes more dovish global central banks can underpin gains.

“The good news is that the market is 75% on its way to the average bear market in terms of duration but looking ahead it takes 430 days, on average, to recover all that was lost during the prior decline,” MKM market technician J.C. O’Hara said. “It’s not our place to forecast earnings, but any revisions lower by earnings this upcoming season, all else equal, will make the market more expensive.”

The Reserve Bank of Australia encouraged those looking for a central bank pivot, hiking a less-than-expected 25 basis points after four hikes of 50. Global yields are still declining.

The 2-year Treasury yield (US2Y) is down 9 basis points to 4.01%, having traded below 4% briefly, a big comedown from recent peaks above 4.30%. The 10-year Treasury (US10Y) is off 7 basis points to 3.58%.

“This is not the first time a pattern of rising US bond yields and falling equity indices, was interrupted by a correction in the former,” SocGen’s Kit Juckes said. “US 10year Note yields had sizeable corrections in May and again in June/July, both of which triggered bear market rallies in the equity market.”

On the economic calendar, JOLTs data for August arrives shortly after the start of trading as the market moves toward Friday’s payrolls report. Economists expect a decline in openings to 10.755M. (Vote in our payrolls Twitter poll.)

With a tight labor market JOLTs is more important than the weak ISM manufacturing number that sparked yesterday’s rally, Juckes said.

“JOLTS may not turn the mood around, but ISM services data tomorrow and labor market data on Friday will set the tone for the next few weeks. My bias is to think that this bond market rally has gone about as far as it can, and when yields turn higher again, equities will struggle, and the dollar will get its mojo back.”

Also after the open, August factory orders are released with the forecast for a rise of 0.3%.

Those figures “will be looked to, as the demand-supply balance for goods seems to be tilting towards supply exceeding demand,” UBS chief economist Paul Donovan wrote. “Selected categories have been experiencing price disinflation or occasionally deflation.”

Among active stocks, Rivian Automotive is rallying after backing deliveries guidance.

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