News

U.S. Stock Futures Struggle Amidst Surge in Bond Yields

4.7

Charles M. Hall

October 03, 2023

U.S. stock futures are facing a lack of momentum on Tuesday as investor sentiment continues to be dampened by the recent surge in bond yields.

How are stock-index futures trading?

S&P 500 futures (ES00) rose 3 points, or 0.1%, to 4327.
Dow Jones Industrial Average futures (YM00) added 19 points, or 0.1%, to 33657.
Nasdaq 100 futures (NQ00) eased 4 points, or 0%, to 14981.

Recent Performance

On Monday, the Dow Jones Industrial Average fell 74 points, or 0.22%, to 33433. The S&P 500 remained unchanged at 4288, while the Nasdaq Composite gained 88 points, or 0.67%, to reach 13308.

Bonds Continue to Grab Attention

Traders are keeping a close eye on the bond market. The start of the week and the fourth quarter were marked by volatility in stocks, driven by the surge in the 10-year Treasury yield. This global benchmark reached a fresh 16-year high of 4.70%.

According to Susannah Streeter, head of money and markets at Hargreaves Lansdown: "The hangover from strong economic data in the U.S. is still being felt, with the headache increasing about the likelihood of high interest rates setting in rattling nerves."

A Slight Recovery

Despite the ongoing concerns, there has been a slight recovery in Treasuries on Tuesday. This allowed stock futures to nudge a fraction higher.

The Impact of Rising Yields on Equities and Small Cap Companies

The recent increase in yields has sparked concerns among investors, as it could potentially have negative implications for the economy. Fortunately, Washington managed to avoid a government lockdown over the weekend, which helped alleviate some of these worries. Additionally, the ISM manufacturing survey for September revealed stronger-than-expected results, further boosting market confidence.

Federal Reserve officials Michelle Bowman and Michael Barr have both emphasized the central bank's commitment to maintaining higher interest rates for an extended period in order to combat persistent inflation. This stance has contributed to the rise in borrowing costs, which can be particularly burdensome for smaller companies seeking financing.

Consequently, the Russell 2000 small cap index (RUT) experienced a 1.6% decline on Monday, bringing its year-to-date performance down by 0.25%. On the other hand, the S&P 500 remained relatively stable on Monday, primarily due to the strength exhibited by major technology stocks known for their consistent cash flow.

Looking ahead, the direction of bond yields and its subsequent impact on stocks will likely depend on forthcoming jobs-related data. Key reports to watch include the August job openings report (JOLTS) scheduled for release on Tuesday at 10 a.m. Eastern time, followed by Wednesday's September ADP private sector employment report. On Thursday, attention will shift to weekly initial unemployment claims, and finally on Friday, the highly anticipated nonfarm payrolls report for September will be unveiled.

Atlanta Fed President Raphael Bostic Roundtable Discussion

Atlanta Fed President Raphael Bostic will be participating in an engaging roundtable discussion on Tuesday, beginning promptly at 8 a.m. This event presents a valuable opportunity to gain insights from a respected industry leader.