Stock futures drop, Nasdaq sinks as Treasury yields climb
Stock futures sank Tuesday morning, with technology stocks leading the way lower as investors nervously eyed a swift rise in U.S. Treasury yields.
Futures on the Nasdaq, a proxy for technology and growth stocks, underperformed against the other two major stock indexes, dropping 1.5% ahead of the opening bell.
The rapid rotation away from growth and technology stocks came as Treasury yields added to recent gains. The yield on the benchmark 10-year note jumped more than 5 basis points to top 1.54%, reaching its highest level since June.
Yields, which move inversely to prices, have held at low levels throughout the pandemic, and rising yields are seen in large part as a bet on a strengthening economic environment. However, the rapid rise in borrowing costs also serves as a headwind to “long-duration” growth stocks, which are valued heavily on future earnings.
Oil prices also added to gains, and positive economic data including a much stronger-than-expected durable goods report out Monday helped underpin the move. West Texas intermediate crude oil futures (CL=F) were on track to climb for a sixth consecutive session and broke above $76 a barrel, or the commodity’s highest price since July. And Brent crude oil, the international standard, touched $80 per-barrel level to reach its highest since October 2018.
“Really what you’re seeing is, across asset classes, the market [is adopting] a pro-cyclical view, which means better growth in the future, higher inflation, higher bond yields,” Tom Essaye, The Sevens Report Research Founder, told Yahoo Finance Live. “You’re seeing that from commodities through to equities.”
Investors also continued to watch developments out of Washington, with lawmakers facing a deadline this week to fund the government by Thursday night to avert a government shutdown.
The effort to pass a new government budget has been swept into ongoing debates around whether or not to raise the federal debt ceiling and pass an expansive $3.5 trillion reconciliation package, which would advance a number of initiatives central to President Joe Biden’s economic agenda. In a move widely expected, Senate Republicans on Monday evening blocked a bill that would have funded the government through Dec. 3 and also raised the debt ceiling through the end of 2022. While Democratic lawmakers have called for raising the debt limit to be a bipartisan move, Republicans have argued Democrats, as majority members of both chambers of Congress, should increase it without their support.
Federal Reserve Chair Jerome Powell and Treasury Secretary Janet Yellen are also set to testify before the Senate Banking Committee on Tuesday about the Fed and Treasury’s responses to the pandemic. In prepared remarks, Yellen addressed the ongoing debt ceiling debate, reiterating her concern over the negative implications to the U.S. economy, should lawmakers fail to take action.
“It is imperative that Congress swiftly addresses the debt limit. If it does not, America would default for the first time in history,” Yellen said in the remarks. “The full faith and credit of the United States would be impaired, and our country would likely face a financial crisis and economic recession.”
For investors, the plethora of overlapping debates in Washington could be a near-term source of more market choppiness.
“I think there’s the opportunity for volatility to pick up a little bit,” Eric Freedman, U.S. Bank Wealth Management chief investment officer, told Yahoo Finance Live on Monday.
“Not only do you have concerns about the debt ceiling and what legislation may come out, but you also have concerns about when the Federal Reserve may step in, and you also have earnings come up,” he added. “So we’re in that shoulder period for the next couple of days when the only announcements coming from companies tend to be negative ones. We’ve had some of those over the past week, particularly focusing on cost pressures.“
9:01 a.m. ET: Home prices reach record high for fourth straight month in July: Case-Shiller
U.S. home prices increased further in July, setting a new all-time high for a fourth consecutive month as elevated demand and materials shortages pushed up housing prices further.
The S&P CoreLogic Case-Shiller national home price index rose at a 19.70% rate in July over last year, accelerating from June’s 18.73% monthly increase. The 20-City Composite Index, which tracks home price changes in 20 major metropolitan areas across the country, rose 19.95%, accelerating from June’s 19.14% increase but coming in a hair below the 20.00% rise expected, according to Bloomberg data.
Over last month, however, the 20-City Composite Index decelerated slightly. The index rose 1.55% in July compared to June, after rising at a 1.79% monthly pace during the prior month. Consensus economists were looking for a 1.70% monthly increase in July.
7:38 a.m. ET Tuesday: Stock futures drop, Nasdaq underperforms
Here’s where markets were trading head of the opening bell:
S&P 500 futures (ES=F): -40.75 points (-0.93%), to 4,392.25
Dow futures (YM=F): -164 points (-0.47%), to 34,579.00
Nasdaq futures (NQ=F): -255.25 points (-1.68%) to 14,939.50
Crude (CL=F): +$0.73 (+0.97%) to $76.18 a barrel
Gold (GC=F): -$20.00 (-1.14%) to $1,732.00 per ounce
10-year Treasury (^TNX): +5 bps to yield 1.534%
6:07 p.m. ET Monday: Stock futures drift sideways
Here were the main moves in markets as of Monday evening:
S&P 500 futures (ES=F): -2.75 points (-0.06%), to 4,430.25
Dow futures (YM=F): -3 points (-0.01%), to 34,740.00
Nasdaq futures (NQ=F): -17 points (-0.11%) to 15,177.75
Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter