US stock futures remained stable in overnight trading on Monday after bond yields rose, putting pressure on the market.
The Dow Jones Industrial Average futures fell just 20 points. S&P 500 futures were unchanged and Nasdaq 100 futures fell 0.2%.
The yield on 10-year government bonds rose due to economic optimism and inflation fears and briefly topped 1.5% on Monday, the highest level since June.
Equities had an uneven session amid the hike in rates.
The Dow Jones Industrial Average gained 71 points on Monday and the small-cap Russell 2000 gained 1.5%. However, the S&P 500 lost 0.3%. The Nasdaq Composite was the relative underperformer, down 0.5% as the decline in bond prices put pressure on growth stocks like Microsoft and Amazon.
“The stock market is increasingly indicating that the US economy has entered another reopening cycle,” said Jim Paulsen, chief investment strategist of the Leuthold Group.
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“A Covid-led economic recovery could worsen supply chain problems and eventually re-ignite inflation concerns. But for now, it has forced investors to reassess whether they have too much in growth and technology and not enough in economically sensitive investments . ” Paulsen adds.
Traders also brooded over the testimony of Federal Reserve Chairman Jerome Powell. In prepared statements due Tuesday, the central bank chief said inflation could last longer than expected.
“Inflation is up and likely to remain so for the months ahead before it eases,” Powell said. “As the economy continues to open up and spending recovers, we see upward pressure on prices, particularly due to supply constraints in some sectors. These effects were bigger and longer-lasting than expected, but they will subside, and with it inflation. “Is likely to slide back towards our longer-term 2 percent target.”
The central bank said last week that it was ready to begin “tapering” – the process of slowly withdrawing the stimulus it provided during the pandemic. The Fed left rates unchanged, but may be planning one rate hike in 2022, followed by three each in 2023 and 2024.
The potential for a government shutdown also clouded the market on Monday.
Legislators must put a funding plan in place before the government faces a shutdown on Friday. While there might be a temporary fix to extending funding, the larger problem of raising the debt ceiling may not be resolved for several weeks. Senate Republicans on Monday blocked a bill that would fund the government and suspend the US debt ceiling.
Wall Street also looks to Thursday when the House of Representatives is expected to vote on the $ 1 trillion bipartisan infrastructure bill already approved by the Senate.
Thursday marks the last trading day of September and the third quarter. The Dow is down 1.4% for the month and the S&P 500 is down 1.8%. The Nasdaq Composite lost 1.9% in September.
The Covid-19 Delta variant, the Federal Reserve’s tapering plan and inflation have worried investors. However, despite the weakness in September, the Dow is still up nearly 14%. The S&P 500 and the Nasdaq are also significantly higher.
“I think the wall of concern has grown,” Ally Invest’s Lindsey Bell told CNBC’s Closing Bell on Monday. “While there are very valid concerns from market participants, I think the one thing … is the strength of the consumer. While inflation may come, the consumer has been resilient.”
– with reports from CNBC’s Patti Domm.
Correction: In a previous version, Lindsey Bell’s name was misspelled.