Stock futures edged lower as traders weighed the prospect of higher rates

Stock futures fell on Tuesday as concerns about higher interest rates lingered among traders awaiting comments from a close leader of the Federal Reserve.

Futures tied to the Dow Jones Industrial Average lost 130 points, or 0.4%. S&P 500 futures also fell 0.4%, while Nasdaq-100 futures fell 0.6%.

Atlanta Federal Reserve President Rafael Bostick said Monday that interest rates should rise above 5 percent and stay there for a “long time.” Meanwhile, San Francisco Federal Reserve President Mary Daley said the central bank should continue raising rates, albeit at a slower pace. Treasury yields rose slightly on Tuesday.

Those comments came ahead of Fed Chairman Jerome Powell’s speech scheduled for 9 a.m. ET on Tuesday. Investors will analyze his comments about the tea leaves in how the Fed will respond next in its attempt to cool inflation.

Investors entered the new year worried that higher Fed rates could tip the economy into recession. However, many seem to be betting that inflation is beginning to decline.

The Nasdaq Composite rose 0.6% on Wednesday, helped by a 6% gain in Tesla. Meanwhile, the Dow erased a 304-point gain and ended down nearly 113 points, while the S&P fell 0.1%.

Monday also marked the end of the first five trading days of 2023, during which the S&P 500 gained 1.1%. According to a classic stock market indicator, this kind of early strength can bode well for the rest of the year.

Fundstrat’s Tom Lee called it a “strong omen” and said the market is set for 20% growth this year.

The Federal Reserve wants financial conditions to “remain tight,” Lee told CNBC “Closing Bell: Overtime.” “Dollars, stocks, bonds — everything is kind of weakening, so they’re probably a little bit worried and want to make sure that inflation is actually dead. But one of the changes, especially since October, is that inflation is under fire.”

Depending on how Thursday’s CPI data plays out, the bond market could push the Fed to make February the last rate hike before tapering, Lee added. Investors will also be watching Friday for big bank earnings and consumer sentiment data.

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