US stock futures fell at the start of the week, suggesting that major stock indices may fall again after the big volatility last week.
S&P 500 futures are down 1.5%. Contracts related to the technology-focused Nasdaq 100 Index fell 1.7% while contracts for the Dow Jones Industrial Average fell 1.2%.
US government bonds were sold off again, pushing the yield on the benchmark 10-year Treasury to 3.171% on Monday from 3.124% on Friday. This puts it on track to settle at a new multi-year high. The 10-year yield has risen 1.6 percentage points since the end of 2021, prompting some investors to reassess valuations of technology and growth stocks. Bond yields rise when prices fall.
“Returns are going up because investors think inflation is out of control,” said Peter Andersen, founder of Boston-based investment firm Andersen Capital Management. “The reality is that we’ve been living in an extraordinarily low price environment for a long time, and it’s normal for the Fed to raise rates, regardless of the inflation numbers,” he added.
Last Wednesday, US bonds and stocks rebounded after the Federal Reserve approved a half percentage point increase in the benchmark lending rate to a target range of 0.75% to 1%. Federal Reserve Chairman Jerome Powell said, Officials did not consider a larger increase at the next central bank meeting. Powell also said that inflation is too high and that the Fed will move quickly to bring it down. He pointed to the personal consumption expenditures price index, which rose by 6.6% in March.
A day after Mr. Powell’s comments, stocks fell sharply and the declines continued into Friday, extending a losing streak for the US market in which the S&P 500 and Nasdaq Composite are now down. Five consecutive weeks. As of last Friday, the Nasdaq is down 22% in the year-to-date period, the S&P 500 is down 13% and the Dow is down 9.5%.
“There was no news from day to day that would cause such a dramatic shift in sentiment over the course of 24 hours. Market volatility is showing that there is significant uncertainty about which direction people think we are headed,” Mr. Andersen said.
The prospect of raising interest rates to combat inflation has some investors worried that such measures will slow economic growth. The political shifts came at a time when Russia’s war against Ukraine and measures to contain the new Covid-19 outbreak in China had clouded expectations.
“We have slowing growth and tightening financial conditions,” said Hani Reda, portfolio manager at PineBridge Investments. “It is the opposite of what we had for the 18 months prior to this year, which was the perfect backdrop for risk markets.”
These concerns have led some money managers to hold the dollar, which is seen as a safer investment in times of volatility, given its status as the world’s reserve currency. The WSJ Dollar Index, which measures the greenback against a basket of 16 other baskets, rose 0.5% on Monday.
In commodities, Brent crude futures fell 1.1% to $111.15 a barrel.
Offshore, the Stoxx Europe 600 Index is down 1.6%.
In Asia, Japan’s Nikkei 225 is down 2.5% on Monday, while Australia’s S&P/ASX 200 is down 1.2%.
A woman passed an electronic screen in Tokyo on Monday.
picture:
Eugene Hoshiko/The Associated Press
China’s CSI 300 Index, which tracks the largest companies listed in Shanghai or Shenzhen, fell 0.8%. Hong Kong markets are closed for a public holiday.
Bitcoin dropped over the weekend and traded at $33,278 on Monday, down 7.5% from the 5 p.m. ET level on Friday. The popular cryptocurrency has lost more than a quarter of its value in the year-to-date period.
Write to Serena Ng at Serena.Ng@wsj.com and Caitlin Ostroff at caitlin.ostroff@wsj.com
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