US equity futures are pointing modestly higher on Wednesday as markets head into the final session of the third quarter.
The S&P 500 and Dow both finished slightly lower on Tuesday, but recovered some of their losses after New York Fed President John Williams said policymakers do not need to rush into another rate hike.
That was enough to cool expectations for an October move. Markets are now pricing roughly a 50% probability of another quarter-point increase next month, down sharply from around 70% before Williams spoke.
Overall, the major indices have held up well through what is typically the weakest month of the year. The S&P 500 and Nasdaq remain close to their record highs, leaving the door open to fresh breakouts heading into the final quarter, while the Dow continues to lag behind.
But that has not changed the bigger picture in the bond market. Treasury yields have eased slightly, but remain close to multi-decade highs as investors continue to weigh persistent inflation, heavy government borrowing and the prospect of rates remaining elevated for longer. The 10-year yield remains above 5.2%, while the 30-year touched around 5.62% on Tuesday, its highest level since 2002.
Oil has also pulled back as Middle East exports continue to recover, easing some of the inflation pressure that had been pushing yields higher. Even so, yields are still the main problem for equities. Higher borrowing costs put more pressure on long-duration growth valuations, particularly across technology.
With the S&P 500 sitting just below its recent high, we continue to view the current price action as a correction within an intact uptrend rather than the beginning of a broader breakdown. We see no reason to add broad index exposure until price confirms the next move higher.
Technology and semiconductor names continue to attract capital, while smaller companies and other rate-sensitive areas remain under pressure from higher borrowing costs. That is why we continue to focus on the stocks and sectors actually showing strength rather than treating the whole market the same.
Attention now turns to today’s PCE data. Economists expect August core PCE to rise around 0.3% on the month, with the annual rate holding close to 3.3%. A hotter-than-expected reading would quickly rebuild the case for an October hike and could push yields higher again.
Micron then reports after the close, which should give us a clearer read on whether strength in semiconductors and AI is continuing. The key question is whether demand for high-bandwidth memory and wider AI infrastructure remains strong enough to support current valuations.
From a technical perspective, Micron remains in a consolidation base after setting an all-time high above $1,200 in June. The stock is now trading around the psychologically important $1,000 level, and a confirmed breakout to fresh highs would give us an opportunity to add further positions to the portfolio. Given where the share price now sits, it will also be interesting to see whether Micron considers a stock split at some point in the future.
Then we have Friday’s September payrolls report, with current expectations centred around 90,000–100,000 new jobs.
From a portfolio perspective, our focus remains on buying and compounding the strongest stocks in the strongest sectors. We want to see the data and, more importantly, the price action confirm that semiconductors are leading again before adding further exposure.
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