S&P 500 futures fall as 10-year bond yields rise to a 14-month high

S&P 500-linked futures contracts eased early Thursday and were pressured by technology stocks as bond yields rose, fueling fears of equity valuations and causing investors to sell high-flyers.

S&P 500 futures fell 0.5% and Nasdaq 100 futures fell 1.2%. Apple, Alphabet, Microsoft and Facebook each fell by at least 1% in premarket retail. Tesla slipped more than 2%. Dow Jones Industrial Average futures pointed to an opening gain of around 30 points.

The movement in futures came when the 10-year government bond yield rose 10 basis points to 1.74%, its highest level since January 2020. The 30-year rate also rose 6 basis points, surpassing the 2 level for the first time since August 2019 , 5%.

The Dow and S&P 500 hit record highs in the previous session after the Federal Reserve announced it would not hike rates until 2023.

Fed chairman Jerome Powell reiterated that the central bank would like to see inflation steady above its 2% target and a substantial improvement in the US labor market before considering rate changes or monthly bond purchases.

The key message of Wednesday’s Fed meeting is, “The committee expects it will be extremely accommodative in the long run, even if the economic outlook improves,” wrote Eric Winograd, senior economist at AB.

“The FOMC shares the market’s view that growth and inflation are likely to rebound if activity increases in 2021, but it does not see this surge in activity as permanent,” he added.

The blue-chip Dow closed on Wednesday for the first time over 33,000 with an increase of 189 points. The S&P 500 also hit a record close, rising 0.3% to 3,974 after falling 0.7% earlier Wednesday.

The Nasdaq Composite, down as much as 1.5%, erased its early losses and ended the day 0.4% higher at 13,525.20. The tech-heavy benchmark came under pressure Wednesday morning as rising bond yields weighed on growth stocks.

Announcements by the Fed and its leader dictated trading Wednesday after the Fed improved its economic outlook to reflect expectations for a stronger recovery, while allaying investor concerns that it might abandon its easy monetary policy earlier than expected.

The Fed expects gross domestic product to grow 6.5% in 2021 before cooling off in later years and inflation to rise 2.2% this year as measured by personal consumption expenditure. The central bank’s stated goal is to keep inflation at 2% over the long term.

However, Powell managed to convince traders that the Fed needs to see a substantial and sustained rise in prices and a sharp fall in unemployment before debating any changes to its current loose political stance.

The Fed expects to continue its loose monetary policy “for a few quarters, leave the key rate at zero for the foreseeable future and keep the key rate well below neutral for several years,” added Winograd from AB. “This is an extraordinarily long period of extremely accommodative politics.”

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