Dow Futures Dip Over 200 Points as Treasury Yields Rebound

04 Mar 2021 · 3rd Party Analysis

WRITTEN BY ThorFX

In Summary

  • US futures lose more ground, accelerating losses from Wednesday
  • 10-year Treasury yield on the rise again, spooking investors
  • Initial jobless claims on the agenda today

US stock futures dropped in overnight trading before the session on Thursday, adding to the losses from the trading on Wednesday when benchmark indexes closed in negative territory. Futures contracts tied to the Dow Jones Industrial Average at one point slid more than 230 points or 0.75%. S&P500 futures and Nasdaq futures also dived, each falling by nearly 1.00%.

Another rise of bond yields invoked fears in the market during trading yesterday which resulted in heavy losses across the board. US equities closed lower, led by the Nasdaq Composite, down 2.70%, or 361.04 points, which led to a close at 12,997.75. The S&P500 dropped 1.31%, or 50.57 points, to a close of 3,819.72. The Dow Jones Industrial Average was a little more composed, down by 0.39%, or 121.43 points, and closed at 31,270.09.

The weak performance happened on the back of the 10-year Treasury yield which climbed to a high of 1.49% on Wednesday before coming down a bit. Last week, a similar rise in bond yields resulted in a stock market sell-off that was later corrected when Fed Chairman Jerome Powell eased fears of the rising interest rate. The benchmark rate then climbed to over 1.6%.

The difference this time, however, is that investors have priced in the prospects of rising inflation. The Federal Reserve has reiterated multiple times that it does not see inflation as a concern in the near future and can tolerate a rise to the standard inflation rate of 2% or even more, if necessary. Treasury Secretary Janet Yellen also reassured the markets that chances for a sharp spike in prices are low.

The market continues to find reasons to be optimistic. Shares of real-economy companies rose in anticipation of a reopening. Airline and cruise line companies moved higher, underpinned by President Biden’s statement that Johnson & Johnson and Merck will work together to produce enough vaccines that will allow all adults to be vaccinated by end of spring.

The additional stimulus is another reason for investors to remain well-positioned in stocks. The $1.9tn cash injection into the market is currently being debated in the Senate and is expected to have a clear outcome in the next several days. For the stimulus bill to pass, President Biden will need all 50 Senate Democrats to vote in favor, with Kamala Harris, Vice President, able to cast a tie-breaking vote. While even a single vote could sink the bill, a small number of Democrats have expressed concerns over the package, saying that it could be more “targeted”. If passed, the package will be the second-largest stimulus package in US history.

Today investors will watch if the economy continues to recover or if it is going through another dip. First-time jobless claims data for the week ending Feb 27 will be released at 08:30 am EST. Additionally, Fed Chair Jerome Powell will discuss the US economy in an online event where he will speak about the state of the US economy.

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