Stock futures slippage, indicating more market volatility

US stock futures were lower, signaling that the market’s start of the year will continue as investors prepare for a Federal Reserve meeting and track tensions between the West and Russia over the military buildup in the border with Ukraine.

S&P 500 futures fell 0.3% on Monday, after the benchmark index suffered its third straight weekly decline and the biggest since March 2020. Contracts on the tech-focused Nasdaq-100 lost 0.6 % and Dow Jones Industrial Average futures were down 0.2%. Stock futures can be volatile and don’t always indicate where the indices will land at the opening bell.

Before the bell in New York, Tesla, due to the earnings presentation on Wednesday, lost 3%. Shares of Moderna and Pfizer each lost 3.5% before trading, while chipmaker Nvidia fell 2%. Kohl’s jumped 26% after a group backed by activist hedge fund Starboard Value offered roughly $9 billion to buy the department store chain.

In the bond market, the 10-year Treasury yield fell to 1.738% from 1.747% on Friday. Yields have risen this year as bond prices tumbled, a sell-off that swept through financial markets by punishing speculative bets on stocks and cryptocurrencies that took off as the Fed scrambled to stimulate the economy in the early days of the lockdown. pandemic.

The losses continued early Monday. Bitcoin traded at around $33,623, down 8.4% from its level at 5 p.m. ET on Friday. Cathie Wood’s Ark Innovation ETF, a big winner in 2020, fell 1.9% in premarket trading.

The biggest single factor driving yields up and stock prices down is the expectation that the Fed will raise interest rates several times in 2022 to rein in inflation, which is at its fastest pace in 40 years. years. The central bank will meet for a two-day meeting on Tuesday. At the conclusion of Wednesday, Chairman Jerome Powell is expected to signal that rates are likely to rise as early as March.

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The central bank is concerned that rapidly rising consumer prices will be self-reinforcing by fueling expectations of higher inflation, said Lyn Graham-Taylor, senior rates strategist at Rabobank. “It’s about aggressively adjusting to get past that.”

Graham-Taylor said he believes inflation will fall this year and the Fed won’t raise rates as many times as the market expects, driving down 10-year government bond yields.

Fears of a possible Russian invasion of Ukraine also weighed on markets at the start of the week, analysts said. The State Department on Sunday ordered the families of US diplomats in Ukraine to leave the country, while the White House is considering sending several thousand troops to Europe.

Sebastien Galy, senior macro strategist at Nordea Asset Management, said a conflict and possible fallout, including the closure of the US financial system to Russian banks, would play out in markets unpredictably. “The closer you get to the cliff, the more nervous [the market] is,” said Mr. Galy. “We don’t have the information to trade.”

The Russian ruble fell 1.8% to trade around 79 per dollar on Monday. The cost of insuring against a default by the Russian government increased, according to data from IHS Markit.

In the US, earnings season continues, with Halliburton results expected,

International Business Machines and Steel Dynamics on Monday, followed by General Electric, Microsoft, Apple and Tesla later in the week. About a fifth of S&P 500 companies have reported results and 82% have beaten analysts’ expectations for earnings per share, according to FactSet.

The US dollar last year saw its biggest gain in value since 2015. That’s good for many US consumers, but it could also dent stocks and the US economy. WSJ’s Dion Rabouin explains. Illustrative photo: Sebastian Vega/WSJ

International stock markets fell, following the fall of Wall Street. The Stoxx Europe 600 lost 2.2%, led by shares in travel, leisure and resource companies.

Unilever,

however, it jumped 6.2% following reports that activist hedge fund Trian Fund Management had bought a stake in the packaged food and consumer goods company in the wake of its failed bid by GlaxoSmithKline..

Vodafone Group rose 5.9% after Reuters reported that the telecommunications company is in talks with Iliad to combine their units in Italy.

Asian markets were mixed as the prospect of higher US interest rates pushed investors to reassess valuations of fast-growing technology companies. Hong Kong’s Hang Seng fell 1.2%, the Shanghai Composite Index was flat and Japan’s Nikkei 225 rose 0.2%.

Chinese internet stocks came under pressure. Hong Kong-listed shares of Alibaba Group and JD.com fell 6.3% and 5.6%, respectively.

Still, Frank Benzimra, director of Asia equity strategy at Société Générale, said investors were returning to China’s battered internet sector, lured by relatively low valuations and a changing regulatory environment. “It seems that there is some stabilization in the regulatory framework. Recent news has not been all bad for the Chinese internet sector,” he said.