U.S. stock futures edged higher Monday, suggesting that the major indexes will extend their rally after both the Dow Jones Industrial Average and the S&P 500 closed last week at a record.
Dow futures rose 0.4%, suggesting that blue-chip stocks in companies sensitive to the economic recovery will extend their gains. Contracts tied to the S&P 500 edged up 0.3%. Nasdaq-100 futures ticked 0.3% higher, pointing to muted gains for the technology sector.
The stock market last week resumed its rally on a firmer footing after weeks of being buffeted by sharp moves in the U.S. government bond market. The yield on 10-year Treasurys has climbed for six straight weeks, its longest winning streak since December 2016. Some money managers have grown concerned that inflation will climb sharply, which could prompt the central bank to consider increasing interest rates within the next two years.
Federal Reserve officials have repeatedly tried to calm such fears, and have reiterated that they will keep monetary policy loose for the foreseeable future to help the labor market’s recovery. Investors are looking to the Federal Reserve’s next monetary policy statement on Wednesday for further guidance about the health of the economy, and policy makers’ views on rising bond yields and inflation prospects.
“The fear factor has now gone away, so markets are now finding an equilibrium. Bond yields will go higher, but central banks are not backing down,” said
global head of macro research. “The Fed meeting will clearly be crucial and essential in terms of further educating markets as to what the Fed is up to.”
Investors have been pulling money from safe government bonds as economic prospects brighten. They have also started to rotate away from the technology sector and into stocks in energy producers and banks in recent weeks, which tend to benefit from an economic recovery. Optimism over the rebound has been driven by a faster-than-expected vaccine rollout and the passage of an additional $1.9 trillion in fiscal stimulus.
“With the reopening of the economy, this fiscal stimulus in the form of checks will have a stronger impact on consumption,” Mr. Brzeski said. That is important because consumer spending accounts for more than two-thirds of U.S. economic output. “Lower-income households will spend this check almost entirely,” he added.
Some money managers are worried that the large fiscal package could lead to sharply higher inflation, and for a prolonged period, forcing the Fed to boost interest rates sooner than policy makers have suggested they would.
The yield on 10-year Treasurys ticked lower on Monday to 1.611%. It ended Friday at 1.634%, the highest since Feb. 6, 2020.
“The Fed needs to send a message here that it is still mindful of the substantial progress that is required before the economy is returned to pre-pandemic conditions, but equally, it’s not going to be too forceful because some of these moves are warranted based on fundamentals,” said James Ashley, head of international market strategy at Goldman Sachs Asset Management. “So it is, how do you calibrate that message in a way that is neither too dovish or too hawkish.”
Over the weekend, bitcoin crossed $60,000 for the first time Saturday. On Monday, it fell back to trade near $58,722.14.
Overseas, the pan-continental Stoxx Europe 600 rose 0.6%.
Major equity benchmarks in Asia ended the day on a mixed note. The Shanghai Composite Index fell almost 1% and South Korea’s Kospi closed 0.3% lower. Japan’s Nikkei 225 rose 0.2% and Hong Kong’s Hang Seng Index gained 0.3%.
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