U.S. equity futures moved lower Monday, while benchmark 10-year Treasury note yields pierced a fresh 2-year high, as investors continue to re-set prices for stocks, bonds and currencies following last week’s hawkish Fed minutes and robust jobs data.
Bond yields are likely to be in focus again this week following the biggest five-day increase for benchmark 10-year note yields since September of 2019. And with inflation set to accelerate at the fastest annual pace in more than three decades later this week, fueled by pandemic stimulus, supply chain disruptions and rising commodity prices.
Benchmark 10-year yields could test 2% later in the quarter after last week’s Fed Minutes revealed a firmer commitment to tame price increases with rate hikes, three of which are likely to come before the end of the year – with the first as early as March.
In the meantime, with headline unemployment falling to 3.9%, and oil prices moving back to the $80 mark, investors are concerned that lingering inflation, alongside a extended spike in Covid infections, will tame U.S. growth over the first few months of the year.
“The Federal Reserve is walking a tightrope by trying to halt inflation and it is common to see market valuations contract as the market weighs what the future looks like, especially in growth companies whose earnings are all in future dollars,” said Tim Pagliara, chief investment officer at Franklin, Tennessee-based CapWealth. “But it isn’t on autopilot; if the unemployment rate continues to fall and inflation continues to rise, then the Fed is likely to act. If Omicron has a larger impact on the economy, the Fed will once again act accordingly.”
Investors may get a clearer view of the Fed’s thinking on all of these issues Tuesday, when Federal Reserve Chairman Jerome Powell takes questions from the Senate Banking Committee as part of his renomination process, with December data on inflation and retail sales following on Wednesday and Friday.
On the earnings front, Wall Street’s biggest banks will kick off the fourth quarter earnings season Friday with updates from JPMorgan Chase (JPM) – Get JPMorgan Chase & Co. Report, Citigroup (C) – Get Citigroup Inc. Report and Wells Fargo (WFC) – Get Wells Fargo & Company Report.
Heading into the start of Monday trading, however, stocks are looking to extend last week’s declines, with futures contracts tied to the Dow Jones Industrial Average indicating a 125 point opening bell gain, while those linked to the S&P 500 are priced for a 32 point pullback.
The tech-focused Nasdaq Composite, fresh off its worst week since February of last year, is looking to open 200 points lower as benchmark 10-year Treasury note yields rise to 1.796% in overnight trading.
Zynga (ZNGA) – Get Zynga Inc. Class A Report shares were a notable pre-market mover, soaring more than 52% in pre-market trading after Take-Two Interactive (TTWO) – Get Take-Two Interactive Software, Inc. Report said it will buy the leading developer of mobile and social gaming network platforms for around $12.7 billion.
Lululemon Athletics (LULU) – Get Lululemon Athletica Inc Report shares were also on the move, slumping 6.5% after the athletic and leisure apparel group cautioned that its fourth quarter earnings would likely be hit by staff shortages and reduced store hours linked to the global surge in Omicron infections.
Beam Therapeutics (BEAM) was active, as well, rising 5.5% after forming a research collaboration with Pfizer (PFE) – Get Pfizer Inc. Report that could be worth $1.35 billon for the Boston-based gene editing specialists.