Stock-index futures fell Monday, with tech-related shares set to again feel the brunt of selling pressure as government bond yields extended their climb following Senate passage of a $1.9 trillion COVID-19 relief package.
What are major benchmarks doing?
Stocks are coming off a volatile week that ended Friday with a sharp rebound from the previous session’s rout. The moves left the Dow DJIA, +1.85% with a weekly gain of 1.8%, while the S&P 500 SPX, +1.95% rose 0.8%. The tech-heavy Nasdaq Composite COMP, +1.55% posted its biggest intraday rebound in a year on Friday, but suffered a weekly fall of 2.1%.
What’s driving the market?
Expectations that aggressive fiscal spending coupled with an rapidly reopening economy as vaccine rollouts continue have fueled expectations for at least a near-term surge in inflation. That, in turn, has contributed to a rise in bond yields which has helped fuel a rotation away from growth-oriented stocks with high valuations toward stocks that have been left behind in the stock market’s post-COVID recovery.
“Despite the indices having occasional stellar days, the overall trend of the market remains in a pullback phase that has yet to be completed,” said Peter Cardillo, chief market economist at Spartan Capital Securities, in a note.
“The adjustment to higher yields, however, has created new leadership resulting in an uneven market performance that will continue until yields begin to level off. We
reiterate that the pullback is likely to result in an 8% -10% decline from the market’s 52-week highs,” Cardillo wrote.
The 10-year Treasury yield TMUBMUSD10Y, 1.602% touched the highest level in over a year Friday before pulling back somewhat, booking its fifth straight weekly rise. Yields, which move in the opposite direction of prices, continued to increase, with the rate on the 10-year note up 3.2 basis points at 1.592%.
The Senate on Saturday narrowly passed a $1.9 trillion COVID-19 relief package, which now goes back to the Democratic-controlled House. The House is expected to approve it by the end of the week, giving President Joe Biden an early legislative victory.
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