U.S. stock futures drop as Powell testimony looms, recession worries return to the spotlight

Those gains followed the worst week for the S&P 500 in two years, with the Dow and Nasdaq also suffering sharp losses.

What’s driving the market?

The pullback looming for Wall Street stocks on Wednesday was unlikely to come as a surprise to analysts who were saying Tuesday that the rebound was nothing more than an oversold bounce. Asian equities largely ignored the U.S. rally and oil prices fell, as investors refocused on recession worries and expectations for continued tighter monetary.

Read: Why Tuesday’s bounce is likely to fizzle out and the stock market’s fortunes are unlikely to change soon

Some analysts on Wall Street warned clients at the start of the week that markets were still not correctly pricing in the likelihood of recession.

“The bear market will not be over until recession arrives or the risk of one is extinguished,” said Morgan Stanley’s chief U.S. equity strategist Mike Wilson in a note on Tuesday. He said another 15% to 20% drop should be expected, taking the S&P 500 index to 3,000.

Investors will be scanning comments from Fed Chairman Powell on Wednesday for more monetary policy clues as he testifies in front of the Senate Banking Committee starting at 9:30 a.m. Eastern Time.

“The FOMO [fear of missing out] gnomes of Wall Street will be desperately looking for signs he is blinking on tightening so that they can rush back into their buy-the-dip happy place,” Jeffrey Halley, senior market analyst at OANDA, told clients in a note.

Other Fed speakers are also lined up for Wednesday, including Philadelphia Fed President Patrick Harker, via an interview at 9 a.m. Eastern, Chicago Fed President Charles Evans at 12:50 p.m. Eastern and Harker and Richmond Fed President Tom Barkin who will jointly appear on a panel discussion at 1:30 p.m. Eastern.

While stocks were set to fall, money was flowing into traditional havens such as bonds. The yield on the 10-year Treasury note TMUBMUSD10Y, 3.208% fell 7 basis points to 3.228%, a day after its biggest jump in seven days. Yields and debt prices move opposite each other.

U.S. crude oil prices CL.1, -5.28% dropped 4.6% to $104.40 a barrel, with Brent BRN00, -4.68% down close to that at $109.63 a barrel, with both more than giving back Tuesday’s rise.

In addition to demand worries fueled by recession concerns, the White House on Wednesday said it is calling on Congress to suspend the federal gasoline tax for three months while also asking states to provide similar relief.

The federal government charges an 18 cent tax per gallon of gasoline and a 24 cent tax per gallon of diesel. A “gasoline tax holiday, while supporting consumers, would support demand, thereby prolong the period of tightness,” said Ole Hansen, head of commodity strategy at Saxo Bank, in a note to clients.

How are other assets trading?

• The ICE U.S. Dollar Index  DXY, +0.13%,  a measure of the currency against a basket of six major rivals, rose just under 0.1%.
• Gold futures  GC00, +0.06%  fell 0.3% to $1,832 an ounce, headed fo r its third-straight losing session.
• The Stoxx Europe 600  SXXP, -1.33%  and London’s FTSE 100  UKX, -1.14%  each fell 1.4%.
• The Shanghai Composite  SHCOMP, -1.20% fell 1.1%, while the Hang Seng Index HSI, -2.56%  HSI, -2.56% dropped 2.5% in Hong Kong and Japan’s Nikkei 225  NIK, -0.37% slipped 0.3%.