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Equity futures fall as bond yields rise




US stock futures fell to start the week, indicating that large stock indices may fall again after last week’s large fluctuations.

Futures for the S&P 500 fell 1.5%. Contracts related to the technology-focused Nasdaq-100 fell 1.7% while contracts for the Dow Jones Industrial Average fell 1.2%.

US government bonds were sold again, pushing the return on the benchmark index for 10-year government bonds to 3.171% on Monday from 3.124% on Friday. It set it on course to settle on yet another multi-year high. The 10-year return has risen 1.6 percentage points since the end of 2021, which has led some investors to reconsider the valuation of technology and growth stocks. Bond yields rise when prices fall.

“Shakes are rising because investors think inflation is out of control,”[ads1]; said Peter Andersen, founder of Boston-based investment firm Andersen Capital Management. “The reality is that we have been living in an extraordinary low interest rate environment for a long time, and it is natural for the Fed to raise interest rates, regardless of inflation figures,” he added.

Last Wednesday, US bonds and equities rose after the Federal Reserve approved a half percentage point increase in its reference rate to a target range of between 0.75% and 1%. Fed Chairman Jerome Powell said officials did not consider an even larger increase at the central bank’s next meeting. Mr. Powell also said that inflation was too high and that the Fed would go fast to bring it down. He pointed to a price index for personal consumption, which rose 6.6% in March.

One day after Mr. Powell’s comments, stocks fell sharply and the declines continued until Friday, extending a series of losses for the US market where the S&P 500 and Nasdaq Composite Index have now fallen for five weeks in a row. From last Friday, the Nasdaq had lost 22% in the period so far this year, while the S&P 500 was down 13% and the Dow was 9.5% lower.

“There was no news from one day to the next that would cause the dramatic shift in sentiment over a 24-hour period. Market volatility shows that there is great uncertainty about where people think we are headed,” says Andersen.

The prospect of further interest rate hikes to combat inflation has worried some investors that such measures will slow economic growth. The political changes have come at a time when Russia’s war against Ukraine and measures to contain recent Covid-19 outbreaks in China have blurred the outlook.

“We have declining growth and tighter financial conditions,” said Hani Redha, a portfolio manager at PineBridge Investments. “It is the opposite of what we have had in the 18 months before this year, which was the ideal backdrop for risk markets.”

This fear has led some money managers to keep the dollar, seen as a safer investment in times of volatility, due to its status as the world’s reserve currency. The WSJ Dollar Index, which measures the US currency against a basket of 16 others, rose 0.5% on Monday.

On commodities, futures prices of Brent oil fell 1.1% to $ 111.15 a barrel.

Abroad, the pan-continental Stoxx Europe 600 fell 1.6%.

In Asia, the Japanese Nikkei 225 fell 2.5% on Monday, while Australia’s S & P / ASX 200 fell 1.2%.

A woman passed an electronic screen in Tokyo on Monday.


Photo:

Eugene Hoshiko / Associated Press

China’s CSI 300 index, which follows the largest companies listed in Shanghai or Shenzhen, fell 0.8%. Hong Kong markets were closed due to a public holiday.

The price of bitcoin fell over the weekend and traded at $ 33,278 on Monday, down 7.5% from Friday’s 17.00 ET level. The popular cryptocurrency has lost more than a quarter of its value in the period so far this year.

Write to Serena Ng at Serena.Ng@wsj.com and Caitlin Ostroff at caitlin.ostroff@wsj.com

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