U.S. stock futures fell, with investors selling government bonds and technology stocks with a valuable value, a day after the Dow Jones Industrial Average hit 33,000 for the first time.
S&P 500 futures fell 0.4%, after the broad market indicator hit an all-time high on Wednesday. Nasdaq-100 futures fell above 1%, pointing to losses for the technology sector after three days of gains. Dow Jones Industrial Average futures rose 0.1%. The blue-chip stock benchmark reached a new milestone after the Federal Reserve pledged to keep its money-making policies easy.
Investors continued to sell U.S. notes for ten years in a bet that inflation would rise as the economy recovers, reducing the value of fixed-income investment returns. The yield on 10-year Treasury bills rose to 1.721%, after rising to 1.641%, the highest for more than a year, on Wednesday. The yield, which rises as bond prices fall, was as low as 0.915% near the start of the year.
“These are inflation expectations: the fact that we are exceeding inflation expectations beyond the Fed’s target is scaring bond markets,” said Edward Park, investment director at Brooks Macdonald.
In recent weeks, rising bond yields and growing investor optimism that the economy will recover quickly has curbed their appetite for very high-value technology stocks. Instead, they are looking for sectors such as banks, airlines and energy companies, which could benefit more when social and business activity recovers. Federal Reserve officials said Wednesday they expect the economy to recover faster than a few months ago, bolstering those bets.
“Powell and the Fed did a pretty good job navigating an uncertain market and delivered enough to ensure that stock volatility didn’t increase, but that said it hasn’t put any limits on yields,” Park said.
U.S. unemployment claims data for the week ended March 13, which will be presented at 8:30 a.m. ET, will provide investors with an insight into the health of the job market. Applications for unemployment benefits for the first time are approaching their lowest level since the pandemic hit, but have historically remained high. Economists surveyed by The Wall Street Journal predict that claims for unemployment claims, a representative of layoffs, fell to 700,000 last week, from 712,000 the previous week.
Rising bond yields and growing economic optimism have curbed the appetite for high-value technology stocks.
Photo:
carlo allegri / Reuters
“What needs to be taken into account are employment figures and all central banks are watching this,” said Michael Matthews, Invesco’s fixed-income fund manager. “The Fed and all central banks have decided it’s best to run the economy, help the recovery and get unemployment as low as possible.”
Bond investors are betting that the Fed will raise interest rates over the next two years, despite data from Wednesday showing that most policymakers still expect to keep interest rates very low until 2023. Only seven of the 18 Fed officials expected to raise rates in 2022 or 2023, starting December 5th.
“Fed [officials] they try to stay unrestricted for the next three years, but the market is trying to challenge it, “Matthews said.” Risky assets will remain admitted, as long as the treasures don’t sell too much.
Meanwhile, inflation-raising expectations are sending investors in search of higher returns and urging them to shy away from safer assets such as government bonds, he added. “This morning, the markets have woken up and decided whether the Fed will keep the policy so loose that they want a higher risk premium,” Matthews said.
Abroad, the pan-continental Stoxx Europe 600 rose 0.4%.
The Bank of England is expected to keep interest rates unchanged when officials release their monetary policy decision at 8am ET.
In Asia, most major benchmarks closed more. China’s Shanghai composite index added 0.5%, while Hong Kong’s Hang Seng index rose 1.3%. The S&P / ASX 200 in Australia fell 0.7%.
Write to Caitlin Ostroff to [email protected]
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