U.S. stock futures pointed to a lower start for the final trading week of September, as investors grappled with the Federal Reserve's hawkish policy stance and a looming budgetary stand-off in Washington. The Dow futures contract dipped by 57 points or 0.2%, S&P 500 futures slipped by 8 points or 0.2%, and Nasdaq 100 futures fell by 34 points or 0.2% on Monday.
The Federal Reserve's suggestion last week that borrowing costs will need to remain higher for a longer period has placed upward pressure on bond yields, dampening stocks. This comes alongside a surge in oil prices and renewed strength in the U.S. dollar. As a result, the benchmark S&P 500 is down 4.2% for the month, the tech-heavy Nasdaq Composite has slid by 5.9% and the 30-stock Dow Jones Industrial Average has shed 2.2%.
Traders are also closely monitoring the ongoing budget stand-off in Washington, as lawmakers scramble to find a resolution ahead of October 1, when the federal government is set to run out of funding for its operations. Over the weekend, both Democrats and Republicans warned that there may not be a deal reached in time to avoid a government shutdown, although House Speaker Kevin McCarthy remains hopeful.
Michael Townsend from Charles Schwab (NYSE:SCHW) noted that historically, government shutdowns have not caused major reactions in the markets but can increase market volatility. He cited the example of the 2018-2019 shutdown where the S&P 500 dropped by 2.7% on the first trading day after the shutdown, rebounded nearly 5% on the next trading day, and was up more than 10% by the end of the 35-day shutdown.
Meanwhile, on Monday, the 10-year Treasury yield rose by 6 basis points to 4.50%, and the 2-year yield remained flat at 5.12%. On the economic front, the Chicago Fed National Activity Index unexpectedly slipped in August, and the Dallas Fed Manufacturing Survey is expected later in the session.
In other news, a tentative deal has been reached in the protracted negotiations between Hollywood writers, film studios, and streaming services. However, the details of the agreement remain undisclosed.
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