Dow futures point lower after rising bond yields spark tech rout

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Dow futures edge higher after steep Wall St. selloff; GameStop underlines worries about market froth


Stock-index futures traded mostly higher in choppy price action Thursday after rising Treasury yields sparked a tech-led selloff that left the Nasdaq Composite with its biggest one-day loss since October.

What are major indexes doing?
  • Futures on the Dow Jones Industrial Average
    YM00,
    -0.18%

    fell 58 points, or 0.2%, to 31,313.

  • S&P 500 futures
    ES00,
    +0.14%

    were up 3 points, or 0.1%, at 3,831.

  • Nasdaq-100 futures were up 25.25 points, or 0.2%, at 12,857.

On Thursday, the Dow
DJIA,
-1.75%

tumbled just shy of 560 points, or 1.8%, while the S&P 500
SPX,
-2.45%

dropped 2.4%, leaving both indexes were the biggest one-day decline since late January. The tech-heavy Nasdaq Composite
COMP,
-3.52%

dropped 3.5%, for its biggest one-day drop since September.

What’s driving the market?

An acceleration in the Treasury market selloff Thursday sent yields, which move in the opposite direction of bond prices, up sharply, triggering a stock market selloff that hit tech-related stocks particularly hard.

“There was a flash spike in the 10-year yield and that upset the apple cart, as higher yields are spooking the stock market,” said Ryan Detrick, chief market strategist at LPL Financial. “Could there be more inflation coming than what most think? Although the Fed isn’t worried about that, the market might be.”

Read: 3 reasons the rise in bond yields is gaining steam and rattling the stock market

The yield on the 10-year Treasury note
TMUBMUSD10Y,
1.466%

rose 13 basis points Thursday to finish at a more-than-one-year high at 1.51%. Yields pulled back Friday morning, with the 10-year rate down 4.7 basis points at 1.473%.

Rising yields can make bonds more attractive to investors relative to stocks, undercutting the longstanding “there-is-no-alternative” mantra that held that investors seeking yield had few other choices than equities due to ultralow rates on government securities. Shares of tech companies, which tend to be heavier borrowers and have seen the most stretched valuations, are seen as particularly vulnerable to a rise in yields.

Need to Know: So long, there-is-no-alternative trade. What now?

Rising yields had unsettled investors earlier in the week, but market participants were temporarily soothed by testimony from Federal Reserve Chairman Jerome Powell on Tuesday and Wednesday. Powell said the economy remained a long way from recovery and indicated the central bank was committed to waiting until inflation tops its 2% target before moving to begin easing up on its own stimulus efforts.

“Investors clearly have a hard time buying into the Fed speak insisting that it’s too early to talk about tapering,” said Han Tan, market analyst at FXTM, in a note.

Market participants “are of the opinion that improving U.S. economic conditions will cajole the central bank into tightening their policy settings sooner than expected. Fed funds futures are already pointing to an interest rate hike that’s brought forward to the end of 2022, from 2024,” Tan said.

On the fiscal policy front, the Senate parliamentarian on Thursday ruled against passing minimum-wage legislation through the budget-reconciliation process.

The economic calendar features January data on personal income and consumer spending. Income is forecast to show a 9.5% surge, while spending is seen up 2.5%. An accompanying measure of core inflation, which is the Fed’s preferred indicator of price pressures, is forecast to show a 0.2% rise.

Data on January trade in goods is also due at 8:30 a.m., while the Chicago-area purchasing managers index for February is set for release at 9:45 a.m. The University of Michigan’s final read on its February consumer sentiment index is set for 10 a.m.

Which companies are in focus?



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