US stock futures flatline after Dow tops 36,000, as investors brace for likely Fed taper

Fed Chair Jerome Powell could announce tapering on Wednesday.

  • US stock futures were little changed on Tuesday, a day after the Dow Jones briefly topped 36,000.
  • A strong earnings season has boosted stocks in recent weeks, pushing them back up to records.
  • Yet the Federal Reserve could start cutting back on its support for the economy on Wednesday.

US stock futures hit pause on Tuesday after equities rose to a record high the previous day, as investors braced for a Federal Reserve meeting that is likely to deliver a key policy decision.

S&P 500 and Dow Jones futures were little changed on Tuesday, while Nasdaq 100 futures were down 0.12%.

US stocks continued their march higher on Monday, with all three major indices closing at records and the Dow Jones briefly topping 36,000. A strong third-quarter earnings season has supported equities, helping investors brush off concerns about inflation and central bank policy.

On Tuesday, oil major BP posted a huge year-on-year jump in profit on the back of high global energy prices, and said it would buy back an extra $1.25 billion of shares.

Earnings season continues this week, with Berkshire Hathaway and Pfizer among the major companies releasing results.

Aside from earnings, investors will be focused on the Federal Reserve and the Bank of England as they announce monetary policy this week – with both central banks grappling with a surge in inflation.

The Fed could well announce that it will start “tapering” its $120 billion a month of bond purchases on Wednesday, and the BoE is expected to raise interest rates on Thursday.

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“We look for the Fed to announce that the tapering of asset purchases will begin in November, with monthly reductions in the pace of $15 billion per month,” said Barclays analysts, including chief US economist Michael Gapen, in a note.

“This would allow tapering to be concluded by mid-2022, providing optionality for rate hikes if needed.”

In the bond markets, short-term yields have been rising sharply as investors have bet that central banks will soon begin cutting back their support for economies. Yet they slipped on Tuesday, with the 3-year US Treasury yield down 4.3 basis points to 0.74%.

RBC Capital Markets analysts, led by US equity strategy chief Lori Calvasina, said earnings season has shown that companies remain nervous about big issues in the economy, notably inflation and shortages.

“On supply chains, the vast majority of companies have continued to describe challenging conditions that are continuing or worsening,” they said in a note. “Within the supply chain discussion, labor has emerged as the clear hot button issue, followed by inflation/pricing, and COVID and ports/logistics.”

In Asia overnight, China’s CSI 300 index fell 1.04% after Beijing authorities tightened restrictions in response to a single coronavirus outbreak. Japan’s Nikkei 225 dipped 0.43% after a solid rise the previous day.

Europe’s continent-wide Stoxx 600 was down 0.13% in early Tuesday trading.

Elsewhere, oil prices remained elevated ahead of an important meeting of the OPEC+ group of oil-producing countries on Thursday, where members are set to decide whether to go faster with supply increases.

Brent crude oil was up 0.2% to $84.88 a barrel, just shy of a three-year high reached in October. WTI crude was down 0.13% to $83.94 a barrel but remained near seven-year highs.

In crypto, bitcoin was 3.4% higher at $62,817, down from a record high of above $66,000 reached in October.