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U.S. stock-index futures were nursing slight gains on Friday morning as the stock market attempted to halt a three day losing streak for the S&P 500 and Nasdaq Composite.
Equities have been supported by the prospect of another round of fiscal stimulus from Washington, easy-money policies from the Federal Reserve, and the beginning of a recovery from the COVID-19 pandemic as vaccines are rolled out, but rising U.S. bond yields have raised questions about valuations.
How are stock benchmarks performing?
- Futures for the Dow Jones Industrial Average YM00, +0.27% YMH21, +0.27% were rising 104 points to reach 31,535, a gain of 0.3%.
- S&P 500 index futures ES00, +0.39% ESH21, +0.39% are rising 16.75 points, or 0.4%, at 3,926.
- Nasdaq-100 futures NQ00, +0.52% NQH21, +0.52% are climbing 74 points, or 0.5%, to reach 13,707.
On Thursday, the Dow DJIA, -0.38% snapped a record winning streak, while the Nasdaq Composite COMP, -0.72% and S&P 500 SPX, -0.44% booked their third straight declines, representing the longest losing streak for the Nasdaq since October and the longest string of losses for the Dow since the four-session skid ended Dec. 14.
For the week, the Dow is aiming for a weekly gain of about 0.1%, the S&P 500 is on track for a 0.5% weekly decline, while the Nasdaq is on pace for a 1.6% weekly skid, based on Thursday’s close.
What’s driving the market?
Weakness in the labor market and worries about rising bond yields have put pressure on the broader equities market this week, especially after a surprise increase in the number of Americans seeking jobless benefits in the latest data weighed on the outlook.
On Friday, the market will be on the lookout for composite data on the U.S. services and manufacturing sectors that are due mid-morning, as well as a report on existing home sales.
Market participants have been expecting further government spending to help mitigate the economic damage from the COVID pandemic, with ongoing negotiations in Congress on the Biden administration’s $1.9 trillion aid package.
During a CNBC interview on Thursday, Treasury Secretary Janet Yellen advocated for more rather than less aid for Americans and said that the risks of doing too little outweighed those for doing too much.
“I think the price of doing too little is much higher than the price of doing something big. We think that the benefits will far outweigh the costs in the longer run,” she told the business network. “We think it’s very important to have a big package that addresses the pain this has caused – 15 million Americans behind on their rent, 24 million adults and 12 million children who don’t have enough to eat, small businesses failing,” Yellen told CNBC.
There are also growing expectations that the coronavirus vaccine rollout will bolster economic recovery in the second half of 2021. Supporting that notion is a research report out of Israel that finds that single shot of Pfizer PFE, -0.95% and BioNTech SE’s BNTX, -0.80% COVID vaccine was showing 85% effective in preventing symptomatic disease 15 to 28 days after being administered.
The U.S. averaged 72,831 new cases a day in the past week, down 44% from the average two weeks ago, while so far 59.1 million vaccine doses have been given, to about 17.8% of the population.
However, optimism around a robust economic rebound has underpinned a rise in U.S. Treasury yields as investors rotate out of government debt and increase their position in assets that might perform well in a so-called reflationary environment.
“Market moves of late-and particularly in the last week-sent a clear story of optimism about the US economy,” wrote BofA Global Research analysts, led by U.S. economist, Michelle Meyer, in a research note dated Friday.
“We currently forecast 6.0% GDP growth this year and 4.5% next year, leaving us on the very high end of the economic consensus. The risk is that growth will be even stronger given prospects for greater stimulus,” the research team wrote.
The 10-year Treasury note TMUBMUSD10Y, 1.313% was yielding around 1.3%, compared against 1.199% at the end of last week. That rise in interest rates has weighed on areas that tend to be more susceptible to rising interest rates, including technology-related shares.
The Federal Reserve has vowed to keep benchmark interest rates at or near 0% for the foreseeable future as the economy contends with the impact of the epidemic but rapidly rising rates could impinge upon the central bank’s efforts some fear.
“That is going to be the story elsewhere, particularly in the US where if the market believes the Fed is making a mistake by keeping rates at zero for too long, the long end will respond and it has,” wrote Peter Boockvar, chief investment officer at Bleakley Advisory Group in a daily research note.
The market’s attention was at least partially diverted on Thursday by a House Financial Services Committee hearing that sought to grill participants in the surge in shares of companies like GameStop Corp., but it isn’t clear what implications the hearing, which included the CEO from popular trading app Robinhood Markets and the head of hedge fund Citadel LLC, Ken Griffin, and owner of its market making arm Citadel Securities, will have on the infrastructure of the broader market.
Which stocks are in focus?
- Shares of Deere & Co. DE jumped in premarket trading Friday, after the construction, agriculture and turf care equipment maker reported big profit and revenue beats for the fiscal first quarter, citing “improving conditions” in the farm and construction sectors, and provided an upbeat full-year outlook.
- Six Flags Entertainment Corp. SIX said Friday it was preparing to open all of its parks for the 2021 season, although the reopening dates are subject to change based on local and federal guidelines related to the COVID-19 pandemic.
