U.S. equity futures were little changed in extended trading Wednesday after stocks retreated from a mini-comeback to resume losses in the trading session as investors continued to juggle a number of risks, including the Federal Reserve’s inflation flight and Russia’s war in Ukraine.
Contracts on Wall Street’s main benchmarks hovered around breakeven headed into overnight trading.
Wednesday marked two years since the S&P 500 bottomed in the 2020 global stock market crash after the World Health Organization moved to declare COVID-19 an official pandemic. Since then, the benchmark has registered its best two-year gain — more than 100% from the low — since 1937, according to data from Bespoke Investment Group.
Although the recovery makes the period the best two-year bull run in history in terms of strength, per Bespoke, U.S. stocks have had a rocky start to 2022 amid a backdrop of growing headwinds.
Historically high levels of inflation have tasked the Fed with reining in surging price levels without slowing economic growth. Stocks have oscillated between gains and losses as traders adjusted to hawkish comments earlier this week from Fed Chair Jerome Powell that indicated officials were prepared to lean into higher short-term interest rates “as needed” to mitigate fast-rising price levels. Powell’s comments come just a week after the central bank lifted its benchmark Federal Funds Rate by 0.25% (to a target range of 0.25% to 0.50%).
“Policymakers were more hawkish than anticipated, exceeding estimates for interest rates and inflation, while reducing forecasts for economic growth,” Comerica Wealth Management Chief Investment Officer John Lynch said in a note.
Since 1958, the last nine interest rate tightening campaigns have seen the S&P 500 register less than average returns of roughly 3.0% in the one-year period following the initial rate hike, Lynch pointed out. However, the index has shown the propensity to climb for more than three years following the initial rate hike, with annualized returns of about 18.0%.
“The era of quantitative easing is seemingly over, and quantitative tightening has begun,” Lynch said. “Though the policy dynamics are shifting, we encourage investors to continue to focus on the long-term fundamentals supporting growth in the economy and corporate profits.”
Tightening also risks bringing the yield curve, the relationship between short- and long-term interest rates of fixed-income securities issued by the U.S. Treasury, closer to inverting. An inverted yield curve, when the short-term rates exceed the long-term rates, has been a signal of a pending economic recession in the past.
“With an economy in late cycle, fears of impending slowdown make defensive sectors relatively more attractive,” Commonwealth Financial Network global investment strategist Anu Gaggar said in commentary. “Thus, for an equity investor, it is imperative to pick your spots carefully.”
“While a paring back of equities may not be necessary, a defensive relative positioning going into a possible slowdown may help investors ride the wave,” he added.
Despite the Fed’s move to raise rates providing some temporary clarity to traders who for months have awaited steps forward on monetary tightening, geopolitical turmoil in Eastern Europe and its economic toll continue to muddy the bank’s path ahead in fighting inflation.
Traders continue to monitor developments on the conflict in Eastern Europe and the global response. President Joe Biden is set to convene with NATO allies in Brussels in a meeting that will set the stage for the announcement of more sanctions against Russia and greater humanitarian aid for Ukraine.
6:14 p.m. ET: Stock futures open little changed as market seesaw continues
Here’s where the major stock index futures opened Wednesday evening:
S&P 500 futures (ES=F): +1.50 points (+0.03%) to 4,449.00
Dow futures (YM=F): +3.00 points (+0.01%) to 34,253.00
Nasdaq futures (NQ=F): +14.50 points (+0.10%) to 14,461.50
Crude (CL=F): -$0.54 (-0.47%) to $114.39 a barrel
Gold (GC=F): +$7.20 (+0.37%) to $1,944.50 per ounce
10-year Treasury (^TNX): -5.2 bps to yield 2.3210%
Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc