Dow futures fall 170 points as bond yields extend higher

Stock index futures are more bullish on vaccines after pause

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Stock index futures pointed to a lower start for Wall Street on Monday, as rising bond yields stoked concerns that stocks, particularly high-yielding tech stocks, have become too expensive. Dow Jones YM00 industrial average futures, -0.54%, fell 172 points, or 0.6%, to 31,261. S&P 500 ES00 futures, -0.71%, were down 29.40 points, or 0.8%, at 3,873.50. Nasdaq-100 NQ00 futures, -1.26%, fell 184.50 points, or 1.4%, to 13,391.50. Stocks posted a mixed performance last week, with the Dow DJIA + 0.00% rising 0.1%, while the S&P 500 SPX, -0.19%, posted a 0.7% drop and the high-tech Nasdaq Composite COMP lost 1.7. %. . What drives the market? A sell-off in Treasuries continued Monday, spreading a rise in yields, which are moving in the opposite direction of prices. Long-term yields last week saw their biggest gain in six weeks. Higher “risk-free” returns make it difficult to justify high valuations for stocks.

It is no coincidence that stocks were hesitant, marked by the underperformance of the rate-sensitive Nasdaq-100 after hitting all-time highs earlier in the week,” Julian Emanuel, chief equity and derivatives strategist at BTIG, said at a note. Yields have been driven by expectations that aggressive rounds of fiscal spending, in addition to an extraordinarily loose monetary policy from the Federal Reserve, will at least stoke inflationary pressures in the short term. Meanwhile, stocks are near record highs and remain expensive when measured by a variety of valuation measures. Congress is expected to pass another round of aid spending that is expected to come close to President Joe Biden‘s $ 1.9 trillion package. Investors were also pointing to the possibility of a big round of long-term infrastructure spending. Meanwhile, the launch of vaccines and falling levels of COVID-19 cases continue to stoke expectations for an acceleration in economic activity this year, even as the death toll in the United States approaches a milestone of 500,000. “A material acceleration in long-term returns combined with a continued rally in real returns could present a new headwind for equities, with the prospect of rebalancing asset allocation at the end of the month (sell stocks, buy bonds) Emanuel said at the end of this week. That said, rising rates and the steepening of the yield curve favor financial stocks, which have plenty of room to outperform the S&P 500 overall, he said. Rising yields and concerns about inflation also underscored concerns about a possible reaction from the Federal Reserve, even though the central bank has vowed to wait until inflation exceeds its 2% target. “Difficulty for equity investors is that the further the Fed moves away from market forecasts, both for GDP and for rates, the greater the concern that market participants have They’re throwing a tantrum “over a possible Fed tightening, said Sean Darby, Jefferies’ global chief strategy officer. in a note. Deliberate efforts by the Fed to shift market expectations beyond its 2% target should allow for a steeper steepening of the yield curve, while real, or inflation-adjusted rates, remain negative, allowing cyclicals and companies with low variable costs perform better, he said. Fed Chairman Jerome Powell will testify before Congress on monetary policy this week. The main economic indicators for January will be released at 10 am ET. Economists expect the index to show a 0.4% rise. What companies do you focus on? Shares of Dow Boeing Co. BA component, + 4.31% fell more than 3% in pre-market trading after United Airlines Holdings Inc. UAL, + 6.83% said it is temporarily recalling aircraft Boeing 777 out of service after an engine exploded in flight over the weekend. Boeing recommended landing planes with that engine model. Shares of Raytheon Technologies Corp. RTX, + 1.89%, the parent company of Pratt & Whitney, which made the engine, fell 2.9% in premarket trading, while United shares rose less than 0.1%. Kohl’s Corp. KSS shares, + 8.48%, rose more than 8% in pre-market trading after The Wall Street Journal reported that a group of activist investors took a large stake in the retailer in an attempt to take the control your directory. Goodyear Tire & Rubber Co. GT, + 1.61% said Monday that it would acquire Cooper Tire & Rubber Co. CTB, + 2.46% in a deal with an enterprise value of approximately $ 2.5 billion. Cooper shares rose more than 13%, while Goodyear shares fell more than 4%. New York-based M&T Bank Corp. MTB, + 2.20% announced Monday that it had reached a deal to buy Connecticut-based People’s United Financial Inc. PBCT, + 2.28% in a stock deal valued at $ 7.6 billion. People’s United shares rose more than 8%, while M&T shares fell 0.6%.