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Stocks looked set to take a breather on Friday as worries about the so-called triple witching sapped some of the euphoria that has lifted the market higher in the aftermath of the Federal Reserve’s interest-rate decision.
Futures for the Dow Jones Industrial Average slipped 7 points, effectively trading flat, and S&P 500 futures ticked down 0.2%. Both gauges had rallied to new highs on Thursday. Contracts tied to the tech-heavy Nasdaq 100 were also in the red, sliding 0.3%.
The moves could be a signal that traders are getting ready to lock in some profits after the previous session’s dizzying rally.
With interest rates falling and the labor market still looking relatively strong, investors are still hoping for a soft landing, which refers to the scenario where the Fed is able to rein in inflation without dragging the U.S. economy into a recession.
“Obviously it’s early days in this cycle of rate cuts, but so far at least, we appear to be in the benign scenario where the Fed are cutting rates outside of a recession,” Deutsche Bank macro strategist Henry Allen said. “Historically, that has been a very good combination for equities.”
But Friday also brings about what’s known as a triple witching–the once-a-quarter phenomenon when stock options, stock index futures, and stock index options all expire on the same day. That could drive up volatility, although Wall Street’s fear gauge has tumbled in recent weeks.
In Asia, the Japanese yen fell 0.8% against the U.S. dollar after the Bank of Japan held interest rates at their current level, as had been expected.
Bond yields were flat over the past 24 hours. The 10-year U.S. Treasury yield was at 3.718%, and the 2-year yield was at 3.595%.
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Friday is what’s known as a triple witching day–the once-a-quarter phenomenon when stock options, stock index futures, and stock index options all expire on the same day. Some investors are fretting that could fuel a run-up in volatility.
But the Cboe Volatility Index, a Wall Street “fear gauge” that trades under the ticker VIX and tracks S&P 500 options, doesn’t seem to be reflecting that uncertainty. It’s up just 0.5%, to a reading of 16.41.
The relatively low level could be a sign that investors are getting complacent, Pictet Asset Management chief strategist Luca Paolini warned on Thursday.
“There is an incredible consensus for a soft landing,” he told Barron’s, adding that investors are overlooking the possibility that earnings forecasts could be too high or that volatility could rise in the run-up to November’s presidential election.
“It may be too early to get worried. But we’re not very bullish. This is not the time to be heroes,” Paolini added.
U.S. stocks look set to fall at the opening bell as excitement about the Federal Reserve’s jumbo interest-rate cut fizzles out. It’s been a similar story across the Atlantic.
Europe’s flagship Stoxx 600 index fell 0.6% in morning trading. Paris’s CAC 40 was down 0.7%, Frankfurt’s Dax dropped 0.8%, and London’s FTSE 100 slid 0.4%.
Among individual stocks, car maker Mercedes-Benz was one of the day’s biggest losers, tumbling 6.2% after the group issued a profit warning, flagging sluggish sales in China
