Stock futures edged higher Friday morning to recover some losses from Thursday’s session, when another technology-led selloff dragged on the three major indexes.
A day earlier, the Nasdaq slid by 3% for its worst session in three weeks as bond yields resurged. The 10-year Treasury yield spiked to the highest level since January 2020 and concerns over inflation reignited. The S&P 500 fell 1.5%, and the Dow dropped 0.5%.
Traders have been considering whether a rapid rise in inflation later this year might take place and crimp the economic recovery, or spur a near-term shift in the Federal Reserve’s ultra-accommodative monetary policy. Federal Reserve Chair Jerome Powell attempted to quell markets’ fears over a near-term monetary policy move earlier this week, but the risks remain on the table in the eyes of many investors.
“Chairman Powell was pretty adamant, as he had been in front of Congress as well, that he was not really inclined to do anything preemptive about inflation, but react to it if inflation becomes a problem and if we’re at full employment. We’re a long way off from that, but the bond market now is getting nervous that we could see the inflation becoming a problem before the Fed does anything about it. And that’s the little bit of a freak out that we had been seeing in bonds, and that continued [Thursday],” Steve Sosnick, Interactive Brokers chief strategist, told Yahoo Finance.
For technology and growth stocks, the rise in rates, as traders price in both expectations of higher economic growth and higher inflation, has catalyzed an especially jarring rout. The tech-heavy Nasdaq has fallen 0.6% for March to date and is holding onto a year-to-date gain of just 1.8%, after surging by 44% in 2020.
“People didn’t really seem to mind that valuations were going up and up and up throughout much of the past 12 months. And that was largely because there was the money flowing in, there were steady earnings et cetera et cetera. And if you could divide steady earnings and steady cash flow essentially by zero, you could put an almost infinite valuation on those future flows,” Sosnick said.
“The problem is, if you start to discount those by ever-higher numbers,” – or as interest rates rise – “even though they’re still low by historical standards, that doesn’t give you much room if you’re priced to perfection,” he added. “It also means that in markets that have really outstripped their longer-term trends or their longer-term moving averages, there’s some room to go on the downside if the psychology remains as it is.”
Other strategists, however, adopted a more upbeat stance. Bank of America equity strategists Ajay Singh Kapur and Ritesh Samadhiya wrote in a note Thursday that they believed a “bullish cocktail” was still in place for equities. They suggested that investors might benefit by tilting toward both the cyclical and value stocks that have outperformed over the past several months, and by taking a “fresh look” at tech shares following the selloff triggered by rising rates.
“We think the three pillars of the bull market are firmly in place — massive free liquidity, an exceptionally strong EPS [earnings per share] growth cycle and substantial market breadth,” they wrote.
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7:17 a.m. ET Friday: Stock futures rise ahead of the opening bell
Here’s where markets were trading as of 7:18 a.m. ET Friday morning:
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S&P 500 futures (ES=F): 3,930.00, up 13.5 points or 0.34%
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Dow futures (YM=F): 32,960.00, up 80 points or 0.24%
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Nasdaq futures (NQ=F): 12,72.25, up 76.75 points or 0.6%
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Crude (CL=F): +$0.54 (+0.9%) to $60.54 a barrel
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Gold (GC=F): +$3.70 (+0.21%) to $1,736.20 per ounce
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10-year Treasury (^TNX): -2.9 bps to yield 1.7%
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6:02 p.m. ET Thursday: Stock futures edge higher after tech rout
Here were the main moves in markets as of 6:02 p.m. ET:
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S&P 500 futures (ES=F): 3,924.25, up 7.75 points or 0.2%
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Dow futures (YM=F): 32,898.00, up 18 points or 0.05%
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Nasdaq futures (NQ=F): 12,827.75, up 32.25 points or 0.25%
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Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck
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