U.S. stock futures were soft on Monday as higher bond yields and a rampant dollar depressed sentiment.
How are stock futures trading
- S&P 500 futures ES00, -0.69% dipped 25 points, or 0.7%, to 3,684
- Dow Jones Industrial Average futures YM00, -0.61% fell 192 points, or 0.7%, to 29,477
- Nasdaq 100 futures NQ00, -0.54% eased 42 points, or 0.4%, to 11,336
On Friday, the Dow Jones Industrial Average DJIA, -1.62% fell 107 points, or 0.35%, to 30077, the S&P 500 SPX, -1.72% declined 32 points, or 0.84%, to 3758, and the Nasdaq Composite COMP, -1.80% dropped 153 points, or 1.37%, to 11067. The Dow Jones Industrial Average closed at a fresh 52-week low and was down 18.6% for the year to date.
What’s driving markets
Futures pointed to Wall Street flirting with a fifth consecutive day of losses as worries about rising borrowing costs and a surging dollar continued to pressure risk assets.
The benchmark S&P 500 has lost 22.5% so far this year after the Federal Reserve stressed it would continue hiking interest rates aggressively to damp inflation near 40-year highs.
In response, the dollar index DXY, 0.37% started the week by topping 114, its highest level since 2002, and the 10-year Treasury yield TMUBMUSD10Y, 3.787%, which began the year around 1.65%, was offering 3.76%.
“In addition to the ongoing flight of the dollar, overarching concerns around the possibility of a global recession are weighing on equity markets generally. The risk of a hard landing for economies following a period of over-tightening are becoming elevated,” said Richard Hunter, head of markets at Interactive Investor.
Adding to the general market angst are sharp moves in the currencies and fixed income of those countries where concerns about fiscal imprudence are building.
In Asian trading the U.K. pound GBPUSD, -0.54% hit a record low versus the buck of sub $1.04 after investors reacted negatively to last week’s debt-funded tax-slashing budget. It later recovered but 10-year gilt yields TMBMKGB-10Y, 4.144% surged 26 basis points to 4.084%. Italian 10-year government bond yields TMBMKIT-10Y, 4.489% hit a nine year peak above 4.4% after a far-right coalition won the country’s election.
However, Jonathan Krinsky, chief market technician at BTIG, asked whether the S&P 500’s (SPX) retreat back towards the June lows should attract investors.
“Given the acceleration higher in the dollar, global yields, and the breakdowns across global FX, it’s hard to not have concerns about longer-term implications. The good news is that in the near-term, we are much closer to a tradable bottom than we were at 3,900,” Krinsky wrote in a note.
“Despite bearish sentiment and positioning much of this year, it’s the transactional indicators that have been lacking for true capitulation. Several of those are at or near levels that suggest a bounce should be forming soon, especially as the seasonals become a tailwind in mid-October,” Krinsky said.
Technical factors may also support stocks for the short term. Krinsky noted that the 200-week average of 3,585 may provide a floor.
Separately, the S&P 500’s 14-day relative strength index, a closely-watched momentum gauge, dropped below 25 according to CMC Markets, where a reading south of 30 is considered oversold.
In addition, option markets are pointing to heightened pessimism that may prove attractive to contrarian traders. The CBOE Vix index VIX, 8.02%, informally known as Wall Street’s fear gauge, has moved up to a three month high around 32, and large money managers over the past four weeks have spent $34.3 billion on put options for stocks and ETFs, the most since such data started in 2009, according to the Financial Times.
There are a number of regional Fed president speakers on the slate for Monday. Boston’s Susan Collins talks at 10 a.m., Atlanta’s Raphael Bostic takes the mic at 12 noon; Lorie Logan of Dallas speaks at 12:30 p.m., and Cleveland’s Loretta Mester will deliver some words at 4 p.m.