Futures contracts tied to the S&P 500 dipped early Thursday pressured by tech shares as bond yields soared, fueling fears of equity valuations and causing investors to sell high flyers.
S&P 500 futures fell 0.5% and Nasdaq 100 futures dropped 1.2%. Apple, Alphabet, Microsoft and Facebook all slid at least 1% in premarket trading. Dow Jones Industrial Average futures pointed to an opening gain of about 30 points.
The move in futures came as 10-year Treasury yield jumped 10 basis points to 1.74%, its highest level since January 2020. The 30-year rate also climbed 6 basis points and breached the 2.5% level for the first time since August 2019.
The Dow and the S&P 500 reached record highs in the previous session after the Federal Reserve said it does not expect to hike interest rates through 2023.
Fed Chair Jerome Powell reiterated that the central bank wants to see inflation consistently above its 2% target and material improvement in the U.S. labor market before considering changes to rates or its monthly bond purchases.
The key message from Wednesday’s Fed meeting “is that the committee expects to be extraordinarily accommodative for a very long time to come, even as the economic outlook brightens,” wrote Eric Winograd, senior economist at AB.
“The FOMC shares the market’s view that growth and inflation are likely to rebound as activity surges in 2021, but it does not view that surge in activity as durable,” he added.
The blue-chip Dow closed above 33,000 for the first time on Wednesday with a gain of 189 points. The S&P 500 also notched a record close and rose 0.3% to 3,974 after falling 0.7% earlier in Wednesday’s session.
The Nasdaq Composite, which had fallen as much as 1.5%, wiped out its early losses and ended the day 0.4% higher at 13,525.20. The tech-heavy benchmark was under pressure Wednesday morning as rising bond yields sapped growth stocks.
Announcements from the Fed and its leader dictated trading on Wednesday after the Fed upgraded its economic outlook to reflect expectations for a stronger recovery while simultaneously quelling investors’ concerns that it could abandon its easy monetary policy sooner than expected.
The Fed said it expects to see gross domestic product grow 6.5% in 2021 before cooling off in later years and inflation rise 2.2% this year as measured by personal consumption expenditures. The central bank’s stated goal is to keep inflation at 2% over the long run.
But Powell managed to convince traders that the Fed would need to see a material and sustained move upward in prices and a sharp drop in unemployment before debating changes to its current easy policy stance.
The Fed expects to continue easy monetary policy “for several quarters to come, to leave the policy rate at zero for the foreseeable future, and to keep the policy rate well below neutral for several years,” added AB’s Winograd. “That is an exceptionally long period of extraordinarily accommodative policy.”
Futures traded mixed early Thursday after both the Dow and S&P 500 notched record closes in the wake of the Fed’s policy decision.