By Joe Wallace
U.S. stock futures ticked down Wednesday, signaling that the equity market will start the third quarter on a tepid note after closing out its best three months in more than 20 years.
Futures tied to the S&P 500 slipped 0.2%, suggesting the stocks benchmark will open slightly lower. The S&P 500 on Tuesday completed its biggest one-quarter gain since 1998, capping a rally fueled by the Federal Reserve's aggressive support for financial markets and signs of an early recovery in economic activity.
Investors will have a fresh chance to assess the state of that recovery Wednesday, with monthly data on the manufacturing sector from the Institute for Supply Management and IHS Markit. The ISM report, due to be released at 10 a.m. ET, will show that activity continued to fall in June but at a slower pace than in May, according to a survey by The Wall Street Journal.
"The general trend on these numbers is expected to be an improvement, but it's still negative for now," said Gerard Fitzpatrick, head of fixed income at Russell Investments. Markets are likely to react badly if the manufacturing data point to a further steep decline in activity, he added.
Investors and traders will later scrutinize minutes of the Federal Reserve's most recent monetary-policy meeting, when the central bank signaled plans to keep interest rates close to zero for years. The yield on 10-year Treasury notes ticked up to 0.679%, from 0.653%, ahead of the minutes' release at 2 p.m.
Spending and other forms of economic activity have rebounded from lockdowns faster than the Fed expected, Chairman Jerome Powell told Congress Tuesday. However, a second outbreak of coronavirus would undermine public confidence and jeopardize parts of the economy that rely on people gathering in groups, he added.
The U.S. is now recording roughly 40,000 cases a day of coronavirus. New daily cases could hit 100,000 if people continue to flout advice on social distancing and face masks, Anthony Fauci, the nation's top infectious-disease doctor, told a Senate committee.
Although the jump in cases poses a threat to the economic recovery, many investors remain optimistic about the outlook for stocks in the second half of the year.
"Early on in a recovery, unless you're going to peter out, you're best off to embrace risk a little bit," said Michael Kelly, global head of multiasset at PineBridge Investments. "That's what we're doing in our portfolios and where we think markets will be rewarding later on in this year."
Stocks rose in Europe and much of Asia Wednesday. The Stoxx Europe 600 edged up 0.1%, led higher by German shares. The gauge climbed almost 13% in the second quarter, after having seen 23% of its value wiped out in the first three months of the year.
China's CSI 300 index gained 2% by the close of trading after a private gauge of manufacturing activity rose to a six-month high, boosted by increased domestic demand. Hong Kong's stock market was closed for a public holiday.
Oil prices rose ahead of data from the Energy Department showing the size of U.S. crude stockpiles. West Texas Intermediate futures climbed 2.6% to $40.29 a barrel, after a separate gauge from the American Petroleum Institute showed that inventories declined by 8.2 million barrels last week.
Write to Joe Wallace at Joe.Wallace@wsj.com