Dow futures drop 400 as oil, Treasury yields climb
U.S. stock futures fell as rising Treasury yields and higher oil prices renewed inflation concerns. Dow futures dropped 510 points, while Brent crude rose 5.1%…
Rising oil prices and Treasury yields put fresh pressure on U.S. markets. The dow futures drop 400 headline understates the move: Dow Jones Industrial Average futures fell 510 points, or 1%, on Thursday, as investors weighed renewed inflation concerns and the prospect of further Federal Reserve rate hikes.
S&P 500 futures dipped 0.6%, while Nasdaq-100 futures fell 0.8%. The declines came as benchmark Treasury yields climbed and crude prices jumped after comments by President Donald Trump about Iran.
Markets were under pressure.
CNBC reported that the 10-year Treasury note yield rose 7 basis points to 5.354%, around levels not seen since 2002. The 30-year Treasury bond yield traded near a 24-year high at 5.726%. Rising yields can add pressure to equities as investors reassess borrowing costs and the value of future company earnings.
Oil also surged. Brent crude rose 5.1% to $105.33 per barrel, while West Texas Intermediate futures advanced 5% to $92.71. CNBC linked the move to Trump’s statement that he did not want to make a deal with Iran to end the war, as well as reports that the U.S. was preparing for “massive bombing” in the Middle East.
Inflation worries return as yields rise
The combination of higher energy costs and bond yields has contributed to volatility in equities. Investors are concerned that expensive oil could keep inflation elevated and push the Federal Reserve to raise interest rates further.
Federal Reserve Governor Christopher Waller said more hikes may be needed to curb inflation, according to CNBC. That prospect adds to the pressure from rising yields, as traders assess how persistent price increases could affect monetary policy.
Still, some investors expect corporate results to support stocks. The S&P 500 is expected to post a blended earnings growth rate of roughly 30% in the third quarter, according to FactSet. That would mark a third straight quarter of earnings growth above 25%.
“If earnings remain strong, and the idea is that they probably will, if expectations are met and/or higher, that is going to sustain this rally — despite the fact that rates are higher,” Courtney Garcia, senior wealth advisor at Payne Capital Management, told CNBC’s “Closing Bell.” “It’s not going to derail the market.”
For investors, the immediate concern is the pressure that higher energy costs and borrowing rates can place on market sentiment. But earnings season could offer a counterweight if companies meet or exceed expectations, as Garcia said investors anticipate.
Global markets also trade lower
Losses extended beyond the United States. In morning trading, the pan-European Stoxx 600 fell 0.85%. The U.K.’s FTSE 100 was down 0.44%, France’s CAC 40 shed 0.81%, Germany’s DAX dipped 0.77% and Italy’s FTSE MIB lost 0.98%.
Asian markets also closed lower. Japan’s Nikkei 225 fell 1.42% to 69,042.11, while South Korea’s Kospi dropped 2.62% to 6,625.93. Australia’s S&P/ASX 200 declined 0.77% to 8,660.90, and mainland China’s CSI 300 lost 1.09% to 4,310.28.
Investors were also awaiting results from PepsiCo before the market open and weekly jobless claims data. The 30-year Treasury auction was another event traders were watching, CNBC reported.
Ulrike Hoffmann-Burchardi, CIO of the Americas at UBS, said in a note that investors should stay invested while managing concentration and timing risks through a disciplined portfolio approach. She said waiting for market concerns to fade could mean missing further gains.
Brent crude stood at $105.33 per barrel.
Source: cnbc.com
