US equity futures remained stable in trading overnight after rising bond yields put pressure on pockets of market growth.
Futures contracts on the Dow Jones Industrial Average lost just 20 points. S&P 500 futures were flat and Nasdaq 100 futures fell 0.2%.
The 10-year Treasury yield rose on economic optimism and inflation fears, briefly exceeding 1.5% on Monday, its highest level since June.
Stocks had a patchy session amid the rate hike.
The Dow Jones Industrial Average gained 71 points on Monday and the small cap Russell 2000 advanced 1.5%. However, the S&P 500 fell 0.3%. The Nasdaq Composite was the relative underperformance, falling 0.5% as lower bond prices put pressure on growth names like Microsoft and Amazon.
“The stock market is increasingly indicating that the US economy has entered another cycle of reopening,” said Jim Paulsen, chief investment strategist for the Leuthold Group.
âA Covid-induced upturn in economic activity may well exacerbate supply chain problems and possibly reignite inflation concerns. But, for now, it has forced investors to reassess whether they have too much growth and technology and not enough economically sensitive investments, âadded Paulsen.
Traders also looked at the testimony of Federal Reserve Chairman Jerome Powell. In prepared remarks due on Tuesday, the central bank chief said inflation could persist longer than expected.
âInflation is high and likely will remain so in the coming months before it moderates,â Powell said. âAs the economy continues to reopen and spending rebounds, we are seeing upward pressure on prices, particularly due to bottlenecks in some sectors. These effects have been larger and longer lasting than expected. , but they will subside, and as they do, inflation should fall back to our longer-term target of 2%. “
The central bank said last week it was ready to start “regressing” – the process of slowly withdrawing the stimulus it provided during the pandemic. The Fed left the rates unchanged but penciled in possibly a rise in interest rates in 2022, followed by three each in 2023 and 2024.
The potential for a government shutdown also clouded the market on Monday.
Lawmakers must act on a funding plan before the government faces a shutdown on Friday. While there may be a temporary solution to extend the funding, the more important issue of raising the debt ceiling may not be resolved for several weeks. Senate Republicans on Monday blocked a bill that would fund the government and suspend the US debt ceiling.
Wall Street also waits on Thursday, when the House is expected to vote on the $ 1 trillion bipartisan infrastructure bill already approved by the Senate.
Thursday marks the last trading day in September and the third quarter. The Dow Jones is down 1.4% for the month and the S&P 500 is down 1.8%. The Nasdaq Composite lost 1.9% in September.
The delta variant of Covid-19, the Federal Reserve’s reduction plan and inflation have worried investors. However, the Dow Jones is still up nearly 14% year-to-date despite the weakness in September. The S&P 500 and the Nasdaq are also up sharply.
“I think the wall of worry has continued to grow,” Lindsey Bell of Ally Invest told CNBC’s “Closing Bell” on Monday. âWhile there are very valid concerns from market participants, I think the only thingâ¦ is the strength of the consumer. While inflation could come, the consumer has shown resilience.â
– with reporting from CNBC’s Patti Domm.
Correction: A previous version misspelled Lindsey Bell’s name.