U.S. stock futures slide as Treasury yields stay elevated

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U.S. stock futures slide

Highlights

Dow Jones, S&P 500, and Nasdaq-100 futures are falling.
Treasury yields remain near multiyear highs.
Markets await the latest U.S. PCE inflation data.

Dow Jones futures fell 0.14%, to 51,630, S&P 500 futures were down 0.07%, at 7,726.50, while Nasdaq-100 futures lost 0.19%, to 30,555.75. Pressure stemming from rising Treasury yields and shifting expectations regarding Federal Reserve policy has weighed on Wall Street, CNBC reports.

Bond yields keep pressure on stocks

The latest futures prices extend a difficult stretch for U.S. equities. On Tuesday, the Dow Jones lost more than 100 points, while the S&P 500 declined 0.2% and the Nasdaq Composite fell 0.1%.

Treasuries remain the main source of pressure. The 30-year yield moved above 5.6% on Tuesday, reaching its highest level since June 2002, while the 10-year yield climbed close to 5.3%, a level last seen in 2007.

Higher government bond yields raise borrowing costs across the economy and give investors a higher-returning alternative to stocks. They can be particularly difficult for highly valued technology shares because higher rates reduce the present value assigned to future earnings.

Fed expectations shift before inflation data

Comments from New York Fed President John Williams on Tuesday reduced expectations for another immediate increase in interest rates. Williams indicated that policymakers have time to collect more information before deciding their next move.

Futures markets assigned a 49% probability of a quarter-point rate increase at the October Fed meeting, according to CME FedWatch data cited in the source material. That was down from 71% on Monday.

Wednesday also brings the August Personal Consumption Expenditures price index, the Fed’s preferred inflation measure. Economists surveyed by Dow Jones expect prices to have risen 0.3% from July and 3.7% from a year earlier.

Quarter ends with yields in focus

The session closes in both September and the third quarter. The S&P 500 and Dow Jones are headed for monthly declines, while the Nasdaq is up more than 1% for September. For the quarter, the S&P 500 and Nasdaq have gained about 2%, while the Dow has fallen nearly 2%.

The immediate question for equities is whether Treasury yields stay around their recent highs after the inflation report. With the 30-year yield above 5.6% on Tuesday and all three major U.S. futures benchmarks lower Wednesday morning, borrowing costs remain a direct constraint on equity valuations.

As we previously reported, yen rises as Japan signals a firmer currency stance.

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