Stock futures traded mixed Monday morning as Investors weighed the prospects of higher inflation and rates in the U.S. against Friday’s solid print on the U.S. labor market recovery.
Contracts on the Dow were slightly higher and added fewer than 50 points in the early session. Nasdaq futures underperformed and fell 0.3%. S&P 500 futures were just a tick below the flat line, and the index hovered just below a recent all-time high despite the dip.
On Sunday, U.S. Treasury Secretary Janet Yellen suggested higher interest rates “would actually be a plus for society’s point of view and the Fed’s point of view,” according to an interview with Bloomberg. She added that President Joe Biden should push ahead with his sweeping multi-trillion-dollar infrastructure plan even if the elevated spending contributes to longer-lasting inflation and higher interest rates.
The statements appeared to solidify that at least some policymakers were comfortable with rising inflation and rates, even as investors have eyed these scenarios with increasing nervousness over their implications for equity prices.
“Inflation can become a headwind to valuations if it leads to expectations of Fed tightening and thus higher real interest rates,” Goldman Sachs Strategist David Kostin wrote in a note Monday. “Overall, the stock market tends to perform better during periods of low inflation than when inflation is high.”
“Within the market, periods of high inflation have corresponded with the outperformance of the Health Care, Energy, Real Estate, and the Consumer Staples sectors,” he said. “Materials and Technology stocks have fared the worst in high inflation environments.”
Still, a number of members of the Federal Reserve have reiterated that they believe the economy is still on the mend from the coronavirus pandemic, and thus that any tightening of their current, highly accommodative monetary policies remains a ways off. Friday’s slightly weaker-than-expected May jobs report seemed to justify this stance, as it showed the economy was still adding back jobs at a pace that suggested a prolonged recovery back to pre-pandemic levels even given present monetary and fiscal support. Market participants also lowered their bets on a 2022 Federal Reserve rate hike following the jobs report, based on CME Group’s Fed Funds Futures.
“Fed Funds Futures prices reflect a solid belief that the first Fed rate increase is not coming until 2023,” Nicholas Colas, co-founder of DataTrek Research, wrote in a note Monday. “Given all the chatter about inflation, that’s pretty remarkable, but it certainly does provide useful color regarding the current strength in U.S. equity markets.”
7:23 a.m. ET Monday: Stock futures struggle for direction
Here’s where markets were trading ahead of the opening bell Monday morning:
S&P 500 futures (ES=F): 4,224.75, -0.08 points (-0.05%)
Dow futures (YM=F): 34,763.00, +21 points (+0.06%)
Nasdaq futures (NQ=F): 13,733.00, -33.75 points (-0.25%)
Crude (CL=F): -$0.27 (-0.39%) to $69.35 a barrel
Gold (GC=F): -$4.10 (-0.22%) to $1,887.90 per ounce
10-year Treasury (^TNX): +1.9 bps to yield 1.579%
Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck
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