U.S. stock futures were soft, but off session lows, on Monday as higher bond yields and a rampant dollar depressed sentiment, putting the S&P 500 on track to again challenge its 2022 low.
What’s happening
-
Futures on the Dow Jones Industrial Average
YM00,
-0.57%
fell 141 points, or 0.5%, to 29,528, after declining nearly 300 points at its session low. -
S&P 50 futures
ES00,
-0.69%
were down 20.50 points, or 0.5%, at 3,688.50. -
Nasdaq-100 futures
NQ00,
-0.53%
were off 43.50 points, or 0.4%, at 11,33.59
Stocks fell sharply last week, with the Dow
DJIA,
down 4% and ending Friday at its lowest since November 2020. The S&P 500
SPX,
dropped 4.6% last week, dipping Friday below its June low before trimming losses. The Nasdaq Composite
COMP,
dropped over 5% last week.
What’s driving markets
Futures pointed to Wall Street flirting with a fifth consecutive day of losses as worries about rising borrowing costs and a surging dollar continued to pressure risk assets.
The benchmark S&P 500 was down 23% through Friday from its Jan. 3 record close, dropping last week after the Federal Reserve stressed it would continue hiking interest rates aggressively to damp inflation near 40-year highs.
In response, the dollar index
DXY,
started the week by topping 114, its highest level since 2002, and the 10-year Treasury yield
TMUBMUSD10Y,
which began the year around 1.65%, was offering 3.76%.
Read: Don’t look for a stock market bottom until a soaring dollar cools down. Here’s why.
“In addition to the ongoing flight of the dollar, overarching concerns around the possibility of a global recession are weighing on equity markets generally. The risk of a hard landing for economies following a period of over-tightening are becoming elevated,” said Richard Hunter, head of markets at Interactive Investor.
Adding to the general market angst are sharp moves in the currencies and fixed income of those countries where concerns about fiscal imprudence are building.
In Asian trading the U.K. pound
GBPUSD,
hit a record low versus the buck of sub $1.04 after investors reacted negatively to last week’s debt-funded tax-slashing budget. It later recovered but 10-year gilt yields
TMBMKGB-10Y,
surged 26 basis points to 4.084%. Italian 10-year government bond yields
TMBMKIT-10Y,
hit a nine year peak above 4.4% after a far-right coalition won the country’s election.
However, Jonathan Krinsky, chief market technician at BTIG, asked whether the S&P 500’s (SPX) retreat back toward the June lows should attract investors.
“Given the acceleration higher in the dollar, global yields, and the breakdowns across global FX, it’s hard to not have concerns about longer-term implications. The good news is that in the near-term, we are much closer to a tradable bottom than we were at 3,900,” Krinsky wrote in a note.
“Despite bearish sentiment and positioning much of this year, it’s the transactional indicators that have been lacking for true capitulation. Several of those are at or near levels that suggest a bounce should be forming soon, especially as the seasonals become a tailwind in mid-October,” Krinsky said.
Technical factors may also support stocks for the short term. Krinsky noted that the 200-week average of 3,585 may provide a floor.
Separately, the S&P 500’s 14-day relative strength index, a closely watched momentum gauge, dropped below 25 according to CMC Markets, where a reading south of 30 is considered oversold.
There are a number of regional Fed president speakers on the slate for Monday. Boston’s Susan Collins talks at 10 a.m., Atlanta’s Raphael Bostic takes the mic at 12 noon; Lorie Logan of Dallas speaks at 12:30 p.m., and Cleveland’s Loretta Mester will deliver some words at 4 p.m.
Companies in focus
-
Shares of PG&E Corp.
PCG,
-2.70%
rose 3.7% in premarket trading, after the California-based utility was added to the S&P 500 index a little more than two years after emerging from bankruptcy. Late Friday, S&P Dow Jones Indices said PG&E would replace Citrix Systems Inc.
CTXS,
-0.06%
in the benchmark index, as Citrix is being acquired by Vista Equity Partners.
Read More: U.S. stock futures point to fifth day of losses on Wall Street to challenge 2022 lows