Stocks Poised to Extend Decline, Led by Tech
May 11 2021 - 5:45AM
Dow Jones News
By Will Horner and Xie Yu
U.S. stock futures and global indexes fell Tuesday after
concerns about rising inflation resurfaced, prompting a selloff in
highflying technology stocks.
Futures tied to the S&P 500 dropped 0.7%, a day after the
broad market index declined 1% from its record closing level.
Nasdaq-100 futures retreated 1.2%, suggesting that tech stocks were
poised for further losses after dragging broader indexes lower at
the start of the week. Dow Jones Industrial Average futures fell
0.5%.
Investors are betting that inflation is likely to climb steeply
in coming months, driven by pent-up spending as well as supply
bottlenecks and a leap in commodity prices. A sharp and sustained
jump in inflation would erode returns on fixed-income assets and
stocks whose valuations rely on future earnings. Some money
managers are concerned that it may also prompt the Federal Reserve
to pare back its easy money policies sooner than anticipated.
"Inflation is an issue that is on everyone's minds right now,
and it is injecting a lot of uncertainty," said Peter Langas, chief
portfolio strategist at Bessemer Trust. "The question is, how does
the Fed react to that?"
Tech companies are bearing the brunt of inflation concerns this
year. Growth stocks led the market's steep rally since last spring.
Investors are increasingly worried that their high valuations may
not be justified if inflation crimps the value of future earnings.
This week, those concerns have spilled over to other sectors as
well, leading to a broader selloff.
"When inflation is rising quite rapidly and there is nothing
around to contain it, that is when equities don't tend to perform
well," said Seema Shah, chief strategist at Principal Global
Investors. "For the last 10 to 20 years, inflation hasn't been a
concern for investors and so, if you look at portfolios, they are
not positioned for inflation risks."
In bond markets, the yield on the 10-year U.S. Treasury note
edged up to 1.610%, from 1.601% on Monday, marking its third
consecutive trading day of gains. Yields rise as prices fall.
Comments Tuesday by John Williams, the president of the Federal
Reserve Bank of New York, and Lael Brainard, a member of the Fed's
board of governors, may offer fresh insights on how they view
inflationary pressures and the course of U.S. interest rates. The
Fed, under Chairman Jerome Powell, has stressed it won't be swayed
by one-off price increases driven by economic reopening.
Ahead of the opening bell, Palantir Technologies is set to
report its earnings. Videogame maker Electronic Arts is scheduled
to post results after markets close.
In commodities, Brent crude, the international energy benchmark,
fell almost 1% to $67.67 a barrel.
Overseas, the pan-continental Stoxx Europe 600 fell 1.9%.
Government bonds in Europe sold off as inflation concerns
weighed on markets in the region. The benchmark 10-year German bund
yield rose to minus 0.168%, from minus 0.213% on Monday.
In Hong Kong, the Hang Seng Index fell 2% by the close of
trading. Japan's Nikkei 225 slumped over 3%, while South Korea's
Kospi index retreated 1.2%.
Asian markets followed U.S. indexes lower on building inflation
concerns, said Grace Tam, chief investment adviser for BNP Paribas
Wealth Management in Hong Kong. Those worries were exacerbated by
Chinese regulators' tougher stance toward its tech giants, she
said. "The overall sentiment on Chinese tech firms has been
weak."
Fresh data showed that factory-gate prices in China jumped last
month by the most in 3 1/2 years, adding to concerns about
inflationary pressures spreading globally.
Write to Will Horner at William.Horner@wsj.com and Xie Yu at
Yu.Xie@wsj.com
(END) Dow Jones Newswires
May 11, 2021 05:30 ET (09:30 GMT)
Copyright (c) 2021 Dow Jones & Company, Inc.