US stock futures rallied somewhat higher on Monday, suggesting that the major indices will extend their rally after both the Dow Jones Industrial Average and the S&P 500 closed at all-time highs last week.
Dow futures were up 0.4%, suggesting that blue chip stocks in companies sensitive to the economic recovery will boost their profits. Contracts linked to the S&P 500 were up slightly by 0.3%. Nasdaq-100 futures were up 0.3%, indicating muted gains for the technology sector.
The equity market resumed its recovery on a firmer basis last week after weeks of sharp moves in the US government bond market. The yield on 10-year Treasurys has risen for six consecutive weeks, the longest winning streak since December 2016. Some money managers have become concerned that inflation will rise sharply, which could prompt the central bank to cut interest rates over the next two years. increase. .
Federal Reserve officials have repeatedly tried to calm such fears and have reiterated that they will keep monetary policy loose for the foreseeable future to aid the labor market recovery. Investors are looking to the Federal Reserve’s next monetary policy statement on Wednesday for further guidance on the health of the economy and policymakers’ views on rising bond yields and inflation outlooks.
“The fear factor has now disappeared, so the markets are now finding a balance. Bond yields will rise, but central banks will not give back, ”said ING Group’s Carsten Brzeski‘s
global head of macro research. “The Fed meeting will clearly be crucial and essential for further informing the markets of what the Fed is up to.”
Investors have taken money out of safe government bonds as the economic outlook improves. They have also begun to move away from the technology sector in recent weeks to stocks with energy producers and banks, which tend to benefit from an economic recovery. Optimism about the recovery was driven by a faster-than-expected vaccine rollout and the passing of an additional $ 1.9 trillion in fiscal stimulus packages.
“With the reopening of the economy, this fiscal stimulus in the form of controls will have a greater impact on consumption,” said Mr Brzeski. That’s important because consumer spending makes up more than two-thirds of US economic output. “Lower-income households will spend this check almost entirely,” he added.
Some money managers are concerned that the massive fiscal package could lead to significantly higher inflation and, for a longer period, force the Fed to raise interest rates earlier than policymakers had suggested.
The return on 10-year Treasurys fell to 1.611% on Monday. It ended Friday at 1,634%, the highest rate since February 6, 2020.
“The Fed needs to send a message here that it is still aware of the substantial progress needed before the economy returns to pre-pandemic conditions, but neither will it be too strong because some of these moves are justified on the basis of over fundamentals, “said James Ashley, head of global market strategy at Goldman Sachs Asset Management.” So it is, how do you calibrate that message in a way that is not too moderate or too aggressive. ”
Over the weekend, bitcoin surpassed $ 60,000 for the first time on Saturday. On Monday, it fell to trade near $ 56,020.86.
Abroad, the pan-continental Stoxx Europe 600 rose by 0.5%.
The main stock benchmarks in Asia ended the day mixed. The Shanghai Composite Index fell nearly 1% and South Korean Kospi closed 0.3% lower. The Japanese Nikkei 225 rose 0.2% and the Hang Seng index in Hong Kong 0.3%.
The stock market resumed its recovery last week.
Photo:
Nicole Pereira / Associated Press
Write to Caitlin Ostroff at [email protected]
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