Market Snapshot: Dow futures slide 135 points as traders keep a wary eye on bonds

0
102
views

U.S. stock futures slumped on Wednesday, as investors paused for breath and booked some profit after a string of all-time highs that helped the S&P 500 score its most records in a new year since 1964.

Traders were also keeping an eye on U.S. bond yields, after the rate on the 10-year Treasury on Tuesday soared above 2.5% to reach its highest level since March.

What are stock futures doing?

Futures for the Dow Jones Industrial Average YMH8, -0.41%  dropped 135 points, or 0.5%, to 25,237, while those for the S&P 500 index ESH8, -0.37%  lost 14.30 points, or 0.5%, at 2,738. Futures for the Nasdaq-100 index NQH8, -0.50%  gave up 43 points, or 0.7%, to 6,645.

The indicated pullback comes after all three major U.S. benchmarks scored all-time closing highs on Tuesday, even as the S&P 500 index SPX, +0.13%  ended only 0.1% higher and the Nasdaq Composite Index COMP, +0.09%  climbed less than 0.1%. The Dow average DJIA, +0.41%  rose 0.4%.

See: Jeff Gundlach predicts the stock market’s 9-year winning streak will end in 2018

With the fresh round of all-time highs, the S&P has now logged records for six straight sessions — or all of the 2018 trading days — tying with 1964 for the longest streak of records to begin a new year.

What is driving the markets?

After the record runs recently, Wednesday’s pullback was seen as merely a pause in the rally and as traders took the chance to take some profits.

Investors were, however, watching U.S. bonds after the yield on the 10-year benchmark note TMUBMUSD10Y, +1.19%  on Tuesday jumped 6.2 basis points to 2.542%, its highest level since March.

That move came after the Bank of Japan cut its bond purchases, sparking chatter that the Japanese central bank is getting ready to end years of ultra-loose monetary policy. 10-year U.S. rates rose 4 basis point to 2.59% on Wednesday.

See: Relax, the Bank of Japan isn’t tapering—yet!

Rising yields can be a two-edged sword for stock markets. When the gain comes from a low base, it can signal that investors are becoming more confident about the economic outlook and therefore dumping safe-haven bonds. That fans a risk-on mood — an appetite for riskier investments — in broader markets.

However, if yields rise too fast or too high, that move tends to weigh on the stock market, because it becomes more attractive to invest in the bond market rather than in stocks.

What are strategists saying?

Having seen the recent records for stocks “there was always the prospect we might start to see a little bit of profit taking,” said Michael Hewson, chief market analyst at CMC Markets, in emailed comments.

“This morning’s price action in Asia and Europe looks like the perfect excuse for that, as bond yields at the longer end of the curve push higher in response to yesterday’s surprise reduction by the Bank of Japan in their bond buying program. A little bit of risk-off in the Nikkei and DAX appears to be weighing on early premarket indications of a lower U.S. open for the S&P 500 and the Dow,” he said.

What are other markets doing?

Stocks in Asia closed mixed, with Japan’s Nikkei 225 index NIK, -0.26%  ending 0.3% lower.

In Europe, stocks were mostly lower, as the Stoxx 600 index SXXP, -0.44%  fell from its highest close since August 2015.

Oil prices continued to rally, sending the West Texas Intermediate February contract CLG8, +0.84%  0.8% higher to a fresh three-year high.

Gold GCG8, +0.88%  rose 0.5%. The ICE dollar index DXY, -0.51%  fell 0.6% to 92.019 as the greenback tanked against the yen. The dollar bought ¥111.48 , down from ¥112.65 late Tuesday in New York.

Read: Swedish krone shoots higher after Riksbank hints at rate hikes in 2018

In cryptocurrencies, the bitcoin spot price BTCUSD, -3.43%  dropped 3.9% to $13,875.30, while bitcoin futures BTCF8, -6.07%  lost 6.1% to $13,850. Ripple coins slumped 17% to $1.97, according to CoinMarketCap.com data.

Which stocks are in focus?

Shares of Eastman Kodak Co. KODK, +119.35%  soared 71% in heavy premarket trade, set to build on a 119% surge from Tuesday when the image-technology company said it is launching a cryptocurrency and would begin a “major blockchain initiative.”

United Continental Holdings Inc. UAL, -0.04%  picked up 2.2% ahead of the bell after the airline late Tuesday said its December traffic rose 2.7% year-on-year.

Apple Inc. shares AAPL, -0.01%  slipped 0.5% as the tech giant faced new questions from the U.S. and France over its battery-related performance issues on iPhones.

Domino’s Pizza Inc. DPZ, +1.52%  could also move after the fast food chain late Tuesday said President and Chief Executive J. Patrick Doyle will leave the company on June 30.

What’s coming up in economic data?

The import price index for December is due at 8:30 a.m. Eastern Time, while wholesale inventories for December are slated for release at 10 a.m. Eastern.

Chicago Fed President Charles Evan will give a speech at the Lake Forest Club economic breakfast at 9 a.m. Eastern.