US stock futures fell slightly, with investors selling government bonds and rich technology stocks a day after the Dow Jones Industrial Average first closed above 33,000.
S&P 500 futures fell 0.4% after the broad market meter hit an all-time high on Wednesday. Nasdaq-100 futures were down more than 1%, indicating losses for the technology sector after three days of gains. Dow Jones Industrial Average futures were up 0.1% higher. The benchmark for blue chip stocks reached a new milestone after the Federal Reserve pledged to maintain its easy-money policy.
Investors continued to sell US 10-year notes in the bet that inflation would accelerate as the economy recovers, diminishing the value of fixed-income investment returns. The yield on 10-year Treasury bonds tipped to 1.721% Wednesday, after rising to 1.641%, the highest level in more than a year. The yield, which rises when bond prices fall, was only 0.915% at the start of the year.
“It’s all about inflation expectations: the fact that we get inflation expectations that exceed the Fed’s target is scary in bond markets,” said Edward Park, chief investment officer at Brooks Macdonald.
In recent weeks, the rise in bond yields and growing optimism from investors that the economy will pick up quickly have slowed their hunger for rich technology stocks. Instead, they look to sectors such as banking, airlines and energy companies, which could benefit more if social and business activity increases. Federal Reserve officials said on Wednesday they expect the economy to recover faster than it did a few months ago, bolstering these bets.
“Powell and the Fed have done a pretty good job navigating an uncertain market and delivering just enough to keep stock volatility from rising, but that said, it hasn’t limited interest rates,” said Mr. . Park.
The US unemployment benefit data for the week ending March 13, which should be expected at 8:30 a.m. ET, will give investors a sense of the health of the job market. First claims for unemployment benefits are close to their lowest levels since the pandemic, but remain historically high. Economists polled by The Wall Street Journal expect the number of claims for unemployment, a proxy for layoffs, to drop to 700,000 last week from 712,000 the week before.
Rising bond yields and growing economic optimism have curbed the appetite for wealthy tech stocks.
Photo:
Carlo Allegri / Reuters
“What you have to look out for is the employment data, and the central banks are all watching that,” said Michael Matthews, manager of fixed income at Invesco. “The Fed and all central banks have decided it is better to keep the economy warm, to support the recovery, to keep unemployment as low as possible.”
Bond investors are betting that the Fed will raise interest rates within the next two years, despite data from Wednesday showing that most policymakers still expect to maintain ultra-low interest rates through 2023. from five in December.
“Fed [officials] try to stick to non-tightening for the next three years, but the market is trying to challenge that, ”said Mr. Matthews. “Risk assets will continue to be supported, provided Treasurys don’t over-sell.”
Meanwhile, expectations that inflation will rise means investors are looking for higher returns and should avoid the safest assets such as government bonds, he added. “This morning, the markets woke up and decided that if the Fed kept policy so lenient, they wanted a higher risk premium,” said Mr. Matthews.
Abroad, the pan-continental Stoxx Europe 600 recorded 0.4%.
The Bank of England is expected to keep interest rates unchanged when officials release their monetary policy decision at 8 a.m. ET.
In Asia, most of the important benchmarks closed higher. China’s Shanghai Composite Index added 0.5%, while Hong Kong’s Hang Seng was up 1.3%. The Australian S&P / ASX 200 was down 0.7%.
Write to Caitlin Ostroff at [email protected]
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