US stock futures fell somewhat lower on Thursday as investors awaited comment from Federal Reserve Chairman Jerome Powell on the outlook for inflation and the central bank’s view of rising bond yields.
Futures pegged to the S&P 500 are down 0.4%, suggesting that the benchmark could fall for the third consecutive day after the opening bubble. Contracts pegged to the Nasdaq-100 were down 0.6%, indicating further losses for technology stocks. Dow Jones Industrial Average futures fell 0.3%.
A recent sell-off in government bonds has pushed up Treasury yields, diminishing investor interest in the technology stocks that had risen in a low-yielding environment. Some money managers are betting that additional fiscal stimulus in the US will drive up inflation and cause the Fed to hike rates sooner than they expected. This has led to a jump in real interest rates, or bond yields after adjusting for inflation expectations.
Investors say they hope Mr. Powell will answer questions about how he sees the rise in yields when he speaks at The Wall Street Journal Jobs Summit at 12:05 p.m. ET. Central bank officials have previously said that they will keep monetary policy flexible until the economy strengthens, and that they see the rise in bond yields as a signal that investors are optimistic about the US economic recovery.
“Powell’s comments today are going to be very important,” said Hugh Gimber, a strategist at JP Morgan Asset Management. “What we’ve been seeing clearly in recent weeks is that the pace of real interest rate hike upsets equities, which is putting the Fed in a difficult time.”
The Fed Chairman’s comments will also provide one of the latest opportunities for markets to hear from key policymakers before a blackout period begins, ahead of the next monetary policy review in mid-March. “This is his real opportunity, ahead of the next Fed meeting, to give investors some clarity on how the Fed views the bond market,” he added.
The yield on the 10-year US Treasury bill fell to 1.464%. It had risen to 1.469% on Wednesday, its second-highest level this year, ending three days of declines. That level marks a steep climb from the beginning of January, when it was only 0.915%. Yields rise when bond prices fall.
Expectations for US economic growth are bolstered by a proposed $ 1.9 trillion Covid-19 aid package. Senate Democrats agreed on Wednesday to qualify for some of the direct payments included in the bill, a concession to centrists whose support is needed to pass it.
“In fact, fiscal stimulus is being fed into consumption, which means earnings can rise and this will support equity markets,” said Esty Dwek, head of global market strategy at Natixis Investment Managers.
She said she expects sectors such as banks that would benefit from the reopening of the economy will perform well if investors leave rich technology stocks. “The key figures of the indexes sometimes mask that it is more a rotation of stocks than stocks.”
A trader worked on the floor of the New York Stock Exchange on Wednesday.
Photo:
Courtney Crow / Associated Press
The stimulus package should also increase support for the unemployed, which will strengthen consumer spending and the economic recovery, Ms Dwek said.
New data on the number of Americans claiming first unemployment benefits in the week ending February 27 should be expected at 8:30 a.m.
Abroad, the pan-continental Stoxx Europe 600 fell by 0.7%.
Most major Asian markets fell as trading closed in a technology-led sell-off that mirrored Wednesday’s US trading
In Japan, SoftBank Group Corp.
fell by more than 5%, pulling the Nikkei 225 down by more than 2%. In Hong Kong, Chinese tech giant Tencent Holdings lost more than 4%, while the city’s industry-focused Hang Seng Tech index fell more than 5%. Broad market benchmarks in Australia, South Korea and mainland China have also declined.
Markets were weighed down by uncertainty about the pace of the global economic recovery and concerns that rising inflation could eventually lead to higher interest rates, said Justin Tang, chief of Asian research at United First Partners in Singapore.
“On the one hand, you want the economy to grow, but the sheer amount of money in the economy is fueling the boogeyman of inflation,” he said. “I’m not sure the economy can actually handle higher interest rates at the moment. We’re reeling, but I’m pretty sure we’re not out of the woods yet, ”he added.
Mr Tang said the recent downturn was reminiscent of 2018, when the technology sector sold out as bond yields soared, although he noted that that episode was slowing down rapidly.
—Joanne Chiu contributed to this article.
Write to Caitlin Ostroff at [email protected]
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