Stock futures are flat after sell-off on Wall Street, more bank earnings ahead

FAN Editor

Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., January 10, 2022.

Brendan McDermid | Reuters

U.S. stock futures were steady in overnight trading on Tuesday following a sell-off on Wall Street triggered by surging bond yields.

Dow futures rose just 10 points. S&P 500 futures gained 0.05% and Nasdaq 100 futures were flat.

On Tuesday, the Dow Jones Industrial Average lost more than 540 points, dragged down by a 7% drop in Goldman Sachs‘ stock. The Wall Street bank missed analysts’ expectations for earnings as operating expenses surged 23%.

The S&P 500 declined 1.8%. The Nasdaq Composite, full of interest rate sensitive technology stocks, was the relative underperformer, dipping 2.6%. The Nasdaq closed at its lowest level in three months as investors feared how quickly the Federal Reserve will hike interest rates.

Bond yields continued their year-to-date climb on Tuesday with the 10-year Treasury topping 1.87%, its highest level in 2 years. The 10-year yield started the year around 1.5%. Meanwhile, the 2-year rate — which reflect short-term interest rate expectations — topped 1% for the first time in two years.

The move, which comes after a market holiday in the U.S. Monday, indicates that investors are preparing for the possibility of more aggressive tightening by the Federal Reserve.

The “2-year yield breaking above 1% is the bond market saying it agrees with the Fed that more aggressive hikes are coming,” said Ryan Detrick of LPL Financial. “Add those worries with crude flirting with $85 a barrel and stubbornly high inflation, and we have a perfect cocktail for a risk-off day.”

The S&P 500 ended the day nearly on top of its 100-day moving average. Jim Paulsen, chief investment strategist at the Leuthold Group, said traders will be watching if the index holds this level or breaks lower.

“With a light economic calendar this week, all eyes will be on key technical support levels, earnings reports and whether bond yields keep surging toward 2% or finally take a breather,” said Paulsen.

Bank earnings continue on Wednesday with reports from Bank of America and Morgan Stanley slated before the bell.

Of the 33 S&P 500 companies that have reported quarterly results, nearly 70% have topped Wall Street’s expectations.

Procter & Gamble, U.S. Bancorp, UnitedHealth and United Airlines also report quarterly earnings on Wednesday.

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