Stock futures opened slightly higher Monday evening, steadying after steep regular-session losses in the S&P 500 and Nasdaq.
During the regular session, the S&P 500 fell for a fifth straight day for its longest losing streak since February 2020, and the Nasdaq posted its worst day in a month as investors rotated away from growth and tech stocks. Shares of airlines, cruise lines, lodging companies and other service-based beneficiaries of a post-pandemic economic reopening rallied strongly, and cyclical sectors including energy and financials outperformed.
Optimism over another round of fiscal stimulus to help support the economy has helped boost shares of companies levered to a strong economic reopening. The U.S. House of Representatives Budget Committee voted to advance President Joe Biden’s $1.9 trillion virus relief proposal on Monday, bringing it a step closer to passage ahead of a mid-March cliff, after which federal unemployment benefits approved under the last round of relief in December are set to expire.
Investors this week have been eyeing a sharp move higher in Treasury yields, raising concerns of an unbridled surge in rates and borrowing costs for companies and inflationary pressure across the economy. The benchmark 10-year yield hovered around 1.35% on Monday for its highest level in a year.
However, rising government bond yields and a steepening yield curve, with longer-dated yields increasing faster than those on the shorter-end of the curve, are also typical features of an economic recovery.
“I think the push up in bond yields is overdue because we have the prospect of very strong economic growth in the U.S. You have seen other indicators of economic activity be very strong, for example commodities have been on a real tear since last summer. Bond yields are reflecting stronger economic growth,” Ernesto Ramos, chief investment officer of BMO Global Asset Management, told Yahoo Finance on Monday.
“The consensus is estimating maybe 6-7% [GDP] growth for 2021. You see the rollout of the vaccine improving a lot and really starting to hit and make a difference. So a lot of signs of reopening are there, and the economic growth will reflect that and therefore bond yields have to reflect stronger economic growth, and that’s why they’ve moved up,” he added. “They’ve moved up pretty quickly, but they really started moving up since July from 60 basis points all the way up to where we are today at 135.”
Still, however, that hasn’t eased some investors’ concerns of a higher-rate environment.
“We’re coming off a very strong 3-month run for U.S. stocks … and will now face the less-welcomed headlines of a typical economic recovery. This includes rising long-term interest rates and oil prices,” DataTrek Co-Founder Nicholas Colas wrote in a recent note. “Yes, it’s entirely natural to see these move higher but that doesn’t mean stocks get a free pass while they do.”
On Tuesday, Federal Reserve Chair Jerome Powell is set to deliver his semiannual monetary policy testimony before the Senate Banking Committee, offering another update on his view for the path forward for monetary policy during and after the pandemic. The Federal Reserve has so far signaled that benchmark interest rates will remain near zero at least through 2023, and that their current asset purchase program at a pace of $120 billion per month will continue until additional progress is made in the economic recovery.
6:07 p.m. ET Monday: Stock futures rise, steadying after losses
Here’s where markets were trading as the overnight session began:
S&P 500 futures (ES=F): 3,880.75, up 7.25 points or 0.19%
Dow futures (YM=F): 31,522.00, up 56 points or 0.18%
Nasdaq futures (NQ=F): 13,240.00, up 15.75 points or 0.12%
Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck
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