Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., January 10, 2022.
Brendan McDermid | Reuters
U.S. stock futures were steady in overnight trading on Tuesday following a sell-off on Wall Street triggered by surging bond yields.
Dow futures rose just 10 points. S&P 500 futures gained 0.05% and Nasdaq 100 futures were flat.
On Tuesday, the Dow Jones Industrial Average lost more than 540 points, dragged down by a 7% drop in Goldman Sachs‘ stock. The Wall Street bank missed analysts’ expectations for earnings as operating expenses surged 23%.
The S&P 500 declined 1.8%. The Nasdaq Composite, full of interest rate sensitive technology stocks, was the relative underperformer, dipping 2.6%. The Nasdaq closed at its lowest level in three months as investors feared how quickly the Federal Reserve will hike interest rates.
Bond yields continued their year-to-date climb on Tuesday with the 10-year Treasury topping 1.87%, its highest level in 2 years. The 10-year yield started the year around 1.5%. Meanwhile, the 2-year rate — which reflect short-term interest rate expectations — topped 1% for the first time in two years.
The move, which comes after a market holiday in the U.S. Monday, indicates that investors are preparing for the possibility of more aggressive tightening by the Federal Reserve.
The “2-year yield breaking above 1% is the bond market saying it agrees with the Fed that more aggressive hikes are coming,” said Ryan Detrick of LPL Financial. “Add those worries with crude flirting with $85 a barrel and stubbornly high inflation, and we have a perfect cocktail for a risk-off day.”
The S&P 500 ended the day nearly on top of its 100-day moving average. Jim Paulsen, chief investment strategist at the Leuthold Group, said traders will be watching if the index holds this level or breaks lower.
“With a light economic calendar this week, all eyes will be on key technical support levels, earnings reports and whether bond yields keep surging toward 2% or finally take a breather,” said Paulsen.
Of the 33 S&P 500 companies that have reported quarterly results, nearly 70% have topped Wall Street’s expectations.