Stock futures traded mixed Monday morning, with technology stocks looking to recover some of last week’s declines.
Contracts on the Dow dipped as shares of component companies JPMorgan Chase (JPM) and Goldman Sachs (GS) declined. Bank stocks, industrials and other cyclical shares including small caps underperformed Monday morning, giving back some recent gains. Technology shares outperformed after another week of declines last week, and the Nasdaq looked to open higher by nearly 1%.
The equity market moves coincided with steadying government bond yields. Treasury yields pulled back, especially on the long end of the curve, and the benchmark 10-year yield hovered below 1.69%. Last week, the 10-year yield jumped to more than 1.7% to reach its highest level since January 2020 as concerns that the quickly recovering economy might generate a rapid rise in inflation lingered. Investors are poised to receive the latest report on the Federal Reserve’s preferred inflation gauge, or core personal consumption expenditures, later this week.
“Investors will remain anxiously focused on interest rates in coming months,” Goldman Sachs strategist David Kostin wrote in a note Monday. “Like the Fed, our economists forecast a transient rise in core PCE [personal consumption expenditures] inflation this spring as a result of short-term factors including the base effect of weak inflation in 2020.”
“Although inflation will likely recede to 2.0% in 2022, investors will fear the above-target inflation may persist and could lead to further upward pressure on interest rates,” Kostin added. “Our rates strategists forecast the 10-year Treasury yield will hit 1.8% by June.”
With investors eyeing both the economic recovery and prospects of inflation, cyclical and value shares have strongly outperformed their tech and growth counterparts so far in 2021. Some strategists said they believed these new leaders in the market had room to run as the recovery chugs along.
“Our U.S. Regime Indicator has shifted to mid-cycle, a phase where inflation is typically strongest,” Bank of America strategist Jill Carey Hall wrote in a note. “In this phase, small caps and value have typically outperformed large caps and growth – further supported by the profits recovery and economic rebound we expect this year.”
However, “inflation-sensitive sectors such as energy and materials are still trading at big discounts to history across a variety of metrics we track, and the S&P 500 overall is discounting a tepid inflation outlook,” she added. “Within small caps, cyclicals continue to trade at a significant discount to defensives, with inflation-sensitive small cap sectors like Energy broadly inexpensive both vs. history and vs. large cap peers.”
7:05 a.m. ET Monday: Stock futures point to a mixed open
Here’s where markets were trading as of 7:05 a.m. ET Monday morning:
S&P 500 futures (ES=F): 3,901.75, up 2.25 points or 0.06%
Dow futures (YM=F): 32,438.00, down 65 points or 0.2%
Nasdaq futures (NQ=F): 12,942.75, up 98.25 points or 0.76%
Crude (CL=F): +$0.24 (+0.39%) to $61.66 a barrel
Gold (GC=F): -$10.30 (-0.59%) to $1,731.40 per ounce
10-year Treasury (^TNX): -5.3 bps to yield 1.679%
Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck
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