U.S. stock futures rose Monday, pointing to a rebound following a tumultuous week that saw the Dow drop by the most in more than seven months.
Futures tied to the Dow Jones Industrial Average advanced 0.5% in a choppy trading session early Monday. By the Friday close, the blue-chips index had suffered its largest percentage decline since the week ended Oct. 30. Contracts linked to the S&P 500 edged up 0.4% Monday, while Nasdaq-100 futures rose 0.5%, pointing to gains in large technology stocks at the opening bell.
Stocks appear poised to recover some ground at the start to the week. Investors’ risk appetite took a hit last week after Federal Reserve officials signaled that they may raise interest rates sooner than they had previously anticipated. The comments prompted a pullback in prices on stocks, lumber and gold last week, before they ground higher on Monday.
“There are no very strong convictions in the market for the time being,” said Nadège Dufossé, head of asset allocation strategy at asset manager Candriam. “The market is really focused on the evolution of rates and central bank comments.”
Stocks are likely to remain at roughly current levels, albeit with increased choppiness, if market sentiment doesn’t shift in some way, she added.
Higher economic growth and inflation in the coming months is likely to support stocks because Americans will increase spending on goods and services when pandemic restrictions ease, said Fahad Kamal, chief investment officer at Kleinwort Hambros. Technology stocks and long-dated government bonds are likely to outperform if growth and inflation slow after 2023, he added.
“For most investors, looking across the asset landscape, there still remains no alternative to equities,” Mr. Kamal said. “Hiring is happening and normality is returning, and all of that is really positive for cyclicality. That is never going to happen in a straight line. As last week showed, there is huge volatility still in equities.”
In bond markets, the yield on the 10-year Treasury note ticked down to 1.423%, from 1.449% Friday. Bond yields fall as prices rise. The 10-year yield has dropped for five consecutive weeks, its longest stretch of declines since August 2019.
“It is completely linked to the decline in inflation expectations,” Ms. Dufossé said. “The market is not pricing overheating anymore in the U.S. economy. Investors think the Fed will be able to contain any overheating in inflation.”
The so-called yield curve flattened, with shorter-dated yields rising to reflect higher rate expectations, while longer-dated yields fell because higher interest rates in the near term would likely mean slower growth and lower interest…
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