Stock-index futures were mostly lower Tuesday, with tech shares continuing to lead the way down, as investors monitored a sharp rise in bond yields and prepared for testimony by Federal Reserve Chairman Jerome Powell on the economic outlook.
What are major benchmarks doing?
- Futures on the Dow Jones Industrial Average YM00,
-0.20% were off 10 points, or less than 0.1%, at 31,456. - S&P 500 futures ES00,
-0.70% were down 19.85 points, or 0.5%, at 3,853.75. - Nasdaq-100 futures NQ00,
-1.81% dropped 210 points, or 1.6%, to 13,014.25.
Big losses for tech shares left the Nasdaq COMP,
What’s driving the market?
A sharp rise in Treasury yields has captured the attention of investors, spelling trouble for tech and other previous highfliers. Higher yields make bonds a more viable alternative to stocks, particularly those that have seen their valuations stretched.
Meanwhile, shares of companies more dependent on the economic cycle have benefited, buoyed by expectations for a pickup in growth as the economy more fully reopens courtesy of aggressive fiscal stimulus, vaccine rollouts and falling COVID-19 cases.
Powell, at 10 a.m. Eastern, is set to begin the first of two days of congressional testimony. Investors will be eager to hear his remarks on the rise in bond yields and inflation expectations, though the Fed chief has previously emphasized the central bank’s determination to hold off on pulling back on monetary stimulus until inflation has surpassed its target of 2%.
Powell “will either make or break the day for investors,” said Ipek Ozkardeskaya, senior analyst at Swissquote. Powell is likely to reiterate the Fed’s support for financial markets and the economy until substantial progress is made in improving the jobs market, but he’s also certain to be questioned about rising inflation expectations, particularly after the sharp rise in the producer-price index last month.
“So the investor mood will essentially depend on Powell’s conviction to maintain his ultraloose monetary policy stance and the feasibility of carrying on with such a soft hand under the actual market circumstances,” Ozkardeskaya said.
Read: Climbing bond yields globally put central banks ‘in a bind,’ warns economist
Meanwhile, rising yields are progressively making bonds viable alternatives to stocks, especially the equities that led the market higher after the onset of the COVID crisis, said Scott Knapp chief market strategist at CUNA Mutual Group.
“While very early in a process that has no guarantee it will continue, market sentiment is moving from ‘there is no alternative to stocks’ to ‘stocks look like the less-attractive alternative,’” he said. “Only time will tell if markets stay on this path.”
In One Chart: Can the bull market in stocks survive rising inflation, bond yields? Here’s what history says
On the fiscal front, the House Budget Committee on Monday approved a $1.92 trillion bill to carry out President Joe Biden’s coronavirus relief plan, a first step toward likely House passage by the end of the week. While the ultimate package is likely to shrink, analysts expect its final price tag to come in not far below Biden’s $1.9 trillion proposal.
Bitcoin BTCUSD,
The S&P CoreLogic Case-Shiller home price index showed house prices rose 10% in December. A consumer-confidence index is set for release at 10 a.m.
Which companies are in focus?
- Shares of electric-vehicle maker Tesla Inc. TSLA,
-10.35% dropped more than 5% in premarket activity as bitcoin dropped sharply. Tesla earlier this month revealed that it had bought $1.5 billion of the cryptocurrency. - Shares of Wells Fargo & Co. WFC,
-2.33% were higher after the bank announced an agreement to sell Wells Fargo Asset Management to private-equity firms GTCR LLC and Reverence Capital Partners LP for $2.1 billion. - Palo Alto Networks Inc. PANW,
-8.24% shares fell 2.8% after the cybersecurity company’s quarterly earnings outlook range fell short of the Wall Street consensus late Monday, while beating estimates for the previous quarter. - Home Depot Inc. HD,
-5.55% shares fell even after the home improvement retail giant reported fiscal fourth-quarter profit and sales that rose above expectations and boosted its dividend by 10%. - Software-as-a-service company ZoomInfo Technologies Inc. ZI,
+8.28% late Monday announced fiscal fourth-quarter results that beat expectations. Shares were up more than 7% in premarket activity. - Shares of RealReal Inc. REAL,
-15.05% were down more than 10% after the e-commerce retailer of secondhand luxury goods late Monday delivered a wider quarterly loss and said that the pandemic had “temporarily disrupted” its path to profitability.
What are other markets doing?
- The yield on the 10-year Treasury note TMUBMUSD10Y,
1.364% continued its rise, up 1.4 basis points at 1.371%. Yields and bond prices move in opposite directions. - The ICE U.S. Dollar Index DXY,
+0.15% , a measure of the currency against a basket of six major rivals, was up 0.2%. - Oil futures gave up early gains, with the U.S. benchmark CL.1,
-0.68% down 0.1% near $61.65 a barrel. April gold futures GCJ21,-0.17% were up marginally at $1,808.50 an ounce. - In overseas stock trading, the pan European Stoxx 600 SXXP,
-0.68% dropped 0.7% and London’s FTSE 100 UKX,-0.12% was off 0.1%. The Shanghai Composite SHCOMP,-0.17% fell 0.2%, while Hong Kong’s Hang Seng Index HSI,+1.03% rose 1%.
