Market Snapshot: Dow futures down more than 100 points as stock market set to resume yield-driven fall


U.S. stock-index futures were sinking Monday, putting the main benchmarks in position to fall for a third consecutive session as fears about rapidly rising rates overshadowed expectations for strong corporate results in coming days.

On top of that, investors were keeping an eye on the potential for tensions between Italy and the European Union over budgetary concerns.

The bond market was closed in observance of Columbus Day and Indigenous Peoples Day.

How are major benchmarks faring?

Futures for the Dow Jones Industrial Average YMZ8, -0.43% were down 112 points, or 0.4%, at 26,381, while those for the S&P 500 index ESZ8, -0.28% were off 8.35 points to 2,885.75, a decline of 0.3%. Nasdaq-100 futures NQZ8, -0.37% retreated 30.25 points, or 0.4%, at 7,405.75.

All three benchmarks are on track to post a third straight decline.

The Dow Jones Industrial Average DJIA, -0.68% slumped 180.43 points, or 0.7%, to 26,447.05 Friday. The S&P 500 index SPX, -0.55% fell 16.04 points, or 0.6%, to 2,885.57. The Nasdaq Composite Index COMP, -1.16%  dropped 91.06 points, or 1.2%, to 7,788.45.

Monday’s action comes after the Nasdaq logged its worst weekly decline since March 23 and the S&P 500 logged its second straight weekly decline amid a surge in long-dated Treasury rates to their highest since 2011. Bond prices fall as yields rise.

Read: 3 reasons why U.S. government bond yields are soaring

What’s driving the market?

A jump in government bond yields over the past several sessions has perhaps heralded a new phase in post-crisis markets that have enjoyed a protracted period of ultra low yields.

Last week saw the yield on the 10-year U.S. Treasury note TMUBMUSD10Y, +1.37%  rise 17.1 basis points, representing its sharpest weekly advance since February and taking it toward 3.23%, its highest level in about seven years.

Higher yields equates to steeper borrowing costs for corporations and investors alike and has caused a reassessment of equity valuations, already deemed lofty by some measures.

On top of that, richer rates of so-called risk-free bonds can compete against equities, which are perceived as comparatively riskier.

Climbing rates, however, have come against a solid backdrop for the domestic economy, with the unemployment rate falling to its lowest level since 1969 and a number of other gauges in previous weeks have underlined the notion that the U.S. expansion continues apace.

Read: Sure, yields are rising—but it’s the bond market’s velocity that threatens to throttle stocks

As for quarterly results, companies in the S&P 500 are projected to post 10% earnings growth in 2019, according to FactSet, offering more evidence of economic health.

Abroad, investors were also watching developments in Europe, with the EU signaling in a letter Friday to Italy’s economic minister, Giovanni Tria, that Italy’s budget targets are a source of concern for the trading bloc, setting up a potential market-disrupting clash.

Additionally, Wall Street remains fixated on progress in trade talks between the U.S. and its major partners, including China, which had previously been the main source of volatility for global markets. A tit-for-tat tariff battle between Beijing and Washington remains intact.

What are analysts saying?

“The market got off to a strong start in the final quarter of the year, only to stumble on rising bond yields. The yield effect and the upcoming earnings season, we think, will likely curtail investors’ appetite for stocks as the game in town is challenged by higher rates,” wrote Peter Cardillo, chief market economist at financial services firm Spartan Capital Securities, in a Monday report.

“While we think the overall earnings season will be favorable, the weight of tariffs will be felt in some situations, which could lead to a less enthusiastic market atmosphere. We continue to remain optimistically cautious in the near term,” he said.

Which stocks are in focus?

Shares of Tesla Inc. TSLA, -7.05%  were trading about 1.4% higher in premarket action after the electric-car maker Sunday night said it has achieved its goal of making the Model 3 sedan the safest car ever built.

ENSCO PLC’s stock ESV, +1.56% was up 2.7% in premarket after Rowan Cos. PLC RDC, +1.40%  announced a merger valued at $12 billion.

What other markets are in focus?

China’s major indexes in Shanghai SHCOMP, -3.72%  and Shenzhen 399106, -3.83%  closed down by more than 3%, as traders returned to work after a weeklong holiday, and as China’s central bank loosened reserve requirements.

Meanwhile, crude-oil CLK9, -1.34% prices were trading sharply lower, while gold GCM9, -1.43% was under pressure and the U.S. dollar index DXY, +0.39% gained 0.4%, proving headwinds for assets priced in the currency.

Providing critical information for the U.S. trading day. Subscribe to MarketWatch’s free Need to Know newsletter. Sign up here.