U.S. stock futures dropped to start the week, with a recent surge in bond yields continuing to add pressure to stocks amid corporate earnings season, with quarterly results from some of the biggest technology companies due in the days ahead.
Futures for the Dow Jones Industrial Average retreated 170 points, or 0.5%, after the index tumbled 286 points last Friday to finish at 33,127. S&P 500 futures shed 0.5% with contracts tracking the tech-heavy Nasdaq down 0.6%.
The dominant narrative for markets remains the uncertainty of whether the Federal Reserve will raise interest rates further to fight inflation, and if rates will stay higher for much longer than once thought. Economic data will be in focus to answer that question—the Fed’s preferred measure of inflation, due Friday—with officials from the central bank in a blackout period ahead of the monetary policy decision next week.
“With the Fed on their media blackout ahead of next week’s [decision], things will be slightly quieter this week in terms of scheduled macro events after a hectic round of Fed speak last week,” said Jim Reid, a strategist at Deutsche Bank. “There are a few important signposts…it wouldn’t be a surprise if the big-tech results have as much impact as the data.”
The coming days will usher in earnings from U.S. tech giants, some of the largest and most influential companies in the stock market. Microsoft and Alphabet report on Tuesday before Meta and Amazon on Wednesday and Thursday, respectively, with those four companies making up some 17% of the S&P 500 index.
“The role played by earnings should intensify this week as some of the tech giants step up to bat. 2023 has seen an overreliance upon a handful of names to drive market upside, with speculation over potential AI revenues helping to lift valuations,” said Joshua Mahony, an analyst at broker Scope Markets. “Elevated treasury yields continue to put downward pressure on stock valuations.”
Indeed, a recent surge in bond yields will also remain in focus and could continue to heap pressure on stocks. The yield on the 10-year U.S. Treasury note topped 5% early Monday, reclaiming a peak seen last week which marks the highest point for the yield benchmark since 2007.
Yields have surged in tandem with shifting expectations over Fed policy, adding headwinds for stocks, because returns on risk-free government debt tends to dampen demand for riskier bets, such as stocks.
“Shockwaves from the seismic rally in U.S. bond yields have started to cause tremors in the stock market,” said Marios Hadjikyriacos, an analyst at broker XM.