Stock Futures Drop Ahead of Powell's Comments
March 04 2021 - 5:34AM
Dow Jones News
By Caitlin Ostroff
U.S. stock futures edged lower Thursday as investors awaited
comments from Federal Reserve Chairman Jerome Powell about the
outlook for inflation and the central bank's views on rising bond
yields.
Futures tied to the S&P 500 ticked down 0.4%, suggesting
that the benchmark may drop for a third consecutive day after the
opening bell. Contracts linked to the Nasdaq-100 fell 0.5%,
pointing to further losses for technology stocks. Dow Jones
Industrial Average futures edged down 0.3%.
A recent selloff in government bonds has lifted Treasury yields,
curbing investors' appetite for the technology stocks that had
soared in a low-yield environment. Some money managers are betting
that additional fiscal stimulus in the U.S. will boost inflation
and cause the Fed to raise interest rates sooner than they had
expected. That has led to a jump in real yields, or the returns on
bonds after adjusting for inflation expectations.
Investors say they are hoping Mr. Powell will answer questions
on how he views 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 is stronger, and that they view the rise in bond
yields as a signal that investors are optimistic about the U.S.
economic recovery.
"Powell's comments today are going to be really important," said
Hugh Gimber, a strategist at J.P. Morgan Asset Management.
"Clearly, what we're seeing over the last few weeks is equities
being disrupted by the pace of the rise in real yields, and that
puts the Fed in a tough space."
The Fed chair's comments will also offer one of the last
opportunities for markets to hear from key policy makers before a
blackout period begins ahead of the next monetary policy review in
mid-March. "This is his real opportunity, prior to 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 U.S. Treasury note ticked down to
1.464%. It had jumped to 1.469% on Wednesday, its second-highest
level this year, ending three days of declines. That level marks a
steep climb from early January, when it was as low as 0.915%.
Yields rise when bond prices fall.
Expectations for U.S. economic growth have been bolstered by a
proposed $1.9 trillion Covid-19 relief package. Senate Democrats
agreed Wednesday to narrow eligibility for some of the direct
payments that are part of the bill, a concession to centrists whose
support is needed to pass it.
"You basically have fiscal stimulus feed through to consumption,
which means earnings can go up and that will support equity
markets," said Esty Dwek, head of global market strategy at Natixis
Investment Managers.
She said she expects sectors like banks that would benefit from
the economic reopening to perform well as investors exit richly
valued technology stocks. "The headline numbers of the indexes
sometimes mask that it has been more of a rotation in equities
rather than out of equities."
The stimulus package should also increase support for unemployed
people, which will bolster consumer spending and the economic
recovery, Ms. Dwek said.
Fresh data on the number of Americans applying for first-time
unemployment benefits in the week ended Feb. 27 is due at 8:30
a.m.
Overseas, the pan-continental Stoxx Europe 600 fell 0.7%.
Most major Asian markets fell by the close of trading in a
technology-led selloff that mirrored Wednesday's trading in the
U.S.
In Japan, SoftBank Group Corp. fell more than 5%, helping pull
the Nikkei 225 down more than 2%. In Hong Kong, Chinese technology
giant Tencent Holdings lost more than 4%, while the city's
sector-focused Hang Seng Tech index retreated more than 5%. Broad
market benchmarks in Australia, South Korea, and mainland China
also fell.
Markets were weighed down by uncertainty over the pace of global
economic recovery, as well as concerns that quickening inflation
could eventually lead to higher interest rates, according to Justin
Tang, the head of Asian research at United First Partners in
Singapore.
"On one hand, you want the economy to grow, but the massive cash
in the economy raises the boogeyman of inflation," he said. "I'm
not sure if the economy can actually take higher interest rates at
the moment. We are recovering, but I'm pretty sure we're not out of
the woods yet," he added.
Mr. Tang said the recent pullback was reminiscent of 2018, when
the tech sector sold off as bond yields rose, though he noted that
episode quickly eased.
Write to Caitlin Ostroff at caitlin.ostroff@wsj.com
(END) Dow Jones Newswires
March 04, 2021 05:19 ET (10:19 GMT)
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