US stock futures fell on Thursday as investors waited for comments from Federal Reserve Chairman Jerome Powell on the inflation outlook and the central bank’s views on rising bond yields.
Futures pegged to the S&P 500 were down 0.4%, suggesting that the benchmark may fall for the third day in a row after the opening bell. Nasdaq-100-linked contracts were down 0.6%, pointing to further losses for technology stocks. Dow Jones industrial average futures fell 0.3%.
A recent wave of government bond sales has boosted Treasury yields, curbing investors’ appetite for tech stocks that had soared in an underperforming environment. Some money managers are betting that additional fiscal stimulus in the US will boost inflation and cause the Fed to raise interest rates earlier than expected. That has led to a jump in real yields, or bond yields after adjusting for inflation expectations.
Investors say they expect Powell to answer questions about how he sees the jump 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 loose until the economy strengthens, and that they see the rise in bond yields as a sign that investors are optimistic about the US economic recovery.
“Powell’s comments today are going to be really important,” said Hugh Gimber, strategist at JP Morgan Asset Management. “Clearly what we are seeing in the last few weeks is equities being disrupted by the pace of growth in real returns, and that puts the Fed in a difficult space.”
The Fed chairman’s comments will also offer one of the last opportunities for markets to listen to key policy makers before a lockdown period begins ahead of the next monetary policy review in mid-March. “This is your real opportunity, before the next Fed meeting, to give investors clarity on how the Fed is viewing the bond market,” he added.
The yield on the 10-year US Treasury note 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 rise since early January, when it was as low as 0.915%. Yields increase when bond prices fall.
US economic growth expectations have been bolstered by a proposed $ 1.9 trillion Covid-19 aid package. Senate Democrats agreed Wednesday to restrict eligibility for some of the direct payments that are part of the bill, a concession to centrists whose support is needed to pass it.
“Basically, the fiscal stimulus is transferred to consumption, which means that earnings can increase and that will support the equity markets,” said Esty Dwek, director of global market strategy for Natixis Investment Managers.
He said he expects sectors like banks that would benefit from the economic reopening to perform well as investors ditch high-value tech stocks. “The numbers of the index holders sometimes mask that it has been more of a rotation in equities than out of equities.”
The stimulus package should also increase support for the unemployed, which will boost consumer spending and economic recovery, Dwek said.
Recent data on the number of Americans who applied for unemployment benefits for the first time in the week ending February 27 is due at 8:30 a.m. M.
Abroad, the pancontinental Stoxx Europe 600 fell 0.7%.
Most major Asian markets fell at close of business in a technology-driven selloff that mirrored Wednesday’s US trading.
In Japan, SoftBank Group Corp.
It fell more than 5%, which helped the Nikkei 225 drop more than 2%. In Hong Kong, Chinese tech giant Tencent Holdings lost more than 4%, while the Hang Seng Tech index focused on the city’s sector fell more than 5%. General market benchmarks in Australia, South Korea and mainland China also fell.
Markets were hit by uncertainty about the pace of the global economic recovery, as well as concerns that accelerating inflation could eventually lead to higher interest rates, according to Justin Tang, head of Asian research at United First. Partners in Singapore.
“On the one hand, you want the economy to grow, but the huge cash in the economy increases the specter of inflation,” he said. “I’m not sure if the economy can really take higher interest rates right now. We are recovering, but I am pretty sure that we are not out of the woods yet, ”he added.
Tang said the recent pullback was reminiscent of 2018, when the tech sector sold out as bond yields surged, though he noted that the episode declined rapidly.
—Joanne Chiu contributed to this article.
Write to Caitlin Ostroff at [email protected]
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