The Federal Reserve is expected to raise interest rates many times this year amid high inflation.

Saul Loeb/AFP via Getty Images

Stocks edged higher on Wednesday as falling bond yields eased pressure off beaten-down technology stocks. All eyes in the day ahead will be on U.S. inflation data and how it could affect Federal Reserve policy on interest rates.

Futures for the Dow Jones Industrial Average rose 200 points, or 0.6%, after the index slipped 84 points on Tuesday to close at 32,160. S&P 500 futures signaled a start 0.7% into the green with the technology stock-heavy Nasdaq poised to rise 1%. The S&P 500 and Nasdaq gained 0.3% and 1% on Tuesday, respectively.

Overseas, the pan-European Stoxx 600 was 0.8% higher and Tokyo’s Nikkei 225 climbed 0.2%.

Stocks were moving cautiously higher after the market halted its fall on Tuesday, bouncing after a slump in the previous three days that marked the worst stretch for the Dow and S&P 500 since 2020. It was the worst three days for the Nasdaq on record.

“Markets have begun to stabilize over the last 24 hours following Monday’s rout, but there’s no doubt that risk appetite is still very subdued as worries about a potential recession gather pace,” said Jim Reid, a strategist at Deutsche Bank .

Investors’ fears center on expectations that the Federal Reserve will continue to move aggressively to raise interest rates and tighten monetary policy as the central bank battles inflation at a four-decade higher. 

The risk is that moving too quickly to increase borrowing costs could significantly pinch economic growth and spur a recession. Ongoing Covid-19 lockdowns in China—which threaten a downturn in the world’s second-largest economy in addition to disrupting U.S. company supply chains and stoking inflation further—only complicate the picture.

U.S. consumer-price index data for April, due in the day ahead, could spark the next move in stocks. Consensus among economists is for inflation to have jumped 8.1% year-over-year, down from 8.6% in March.

If the number is much higher than that, it could prompt fears that the Fed will move even more aggressively than is already expected and trigger another leg down. Signs that inflation has peaked could let stocks breathe a sigh of relief.

“In order for risk assets to meaningfully pare losses, markets need to be assured that U.S. inflation has indeed peaked and will continue decelerating, in turn allowing the Fed to ease off from its ultra-hawkish stance,” said Han Tan, an analyst at broker Exinity. 

“Until then, markets remain at the mercy of policy makers’ battle against the hottest inflation in 40 years, with risk assets living on a prayer as long as the Fed has yet to reach peak hawkishness.”

Helping technology stocks in particular—the Nasdaq was set to outperform the other major indexes on Wednesday—has been a fall in bond yields. 

Many tech companies are valued based on profits years into the future, so their valuations come under pressure as higher yields discount the present value of future cash. And when long-dated bonds return more, that reduces the premium investors expect to get from making riskier bets on stocks compared with safer bond investments, pressuring stock valuations generally.

The yield on the benchmark 10-year U.S. Treasury note was down to 2.94% on Wednesday, having hit multiyear highs near 3.2% earlier in the week.

Here are two stocks on the move Wednesday:

Coinbase Global (ticker: COIN) tumbled 17% in the U.S. premarket, after the cryptocurrency exchange reported a wider-than-expected loss of $1.98 a share, missing analysts’ estimates of a 1 cent loss.

Toyota Motor (7203.Japan) tumbled 4% in Tokyo trading, after the car maker issued an operating profit outlook for the fiscal year ending in March 2023 that was below analysts’ expectations.

Write to Jack Denton at jack.denton@dowjones.com