Nasdaq-100 futures point to a partial recovery in tech stocks as bond yields and oil prices slide
The yield on the benchmark 10-year Treasury note held steady after six consecutive days, falling from 1.534% on Tuesday to 1.499% on Wednesday. It closed at the highest level since June.
Stocks hit a rough patch in recent days after the Federal Reserve indicated it would begin reducing its bond-buying as of November—and likely start raising interest rates next year. Higher oil and other commodity prices also helped boost bond yields as investors braced for higher inflation.
Higher yields have weighed on stocks of fast-growing tech companies, which are heavily weighted in major stock indexes. These stocks are particularly sensitive to changes in bond yields, as most of the value assigned to them by investors is based on distant future profits. When yields rise, bonds become more attractive to hold than stocks.
“Yield pressure on equities eased today. We are watching to see if the same pattern continues where you get the big selloff, the next day you see a strong recovery. So far we have got that,” said Fahad Kamal, chief investment officer at Kleinwort Hambros. “The outlook is still fundamentally positive.”
Global benchmark Brent crude rose 0.5% to $77.99 a barrel on Wednesday, after hitting a three-year intraday high Tuesday. According to analysts, an unexpected fall in the gauge of US consumer confidence and higher-than-expected inventories suggest energy demand could weaken in the near term.
“Ultimately the reason for this big jump in yields is the steep rise in oil prices in the last few days, it has had a massive impact on inflation,” Mr. Kamal said. “The fact that oil has stopped growing means that yields may also stop growing. The selling pressure has eased.”
Major technology stocks edged higher in premarket trading. Apple and Alphabet both gained 1.2%, Microsoft 1.1%, and Nvidia 1.4%. PayPal was up 1.6%.
The pan-continental Stokes Europe 600 advanced 1.1%, led by shares of technology companies and banks. Shares of Heidelberg Cement fell 2.2% after the Wall Street Journal reported that the company was buying a stake in software company Command Alcon for about $1.7 billion.
The US dollar rose again, with the Businesshala Dollar Index reaching its highest level since November.
Georgina Taylor, multiset fund manager at Invesco, said government bond yields are attracting rapid capital inflows, which is driving the dollar up. During the market sell-off earlier in the week, it was a defensive play and “you have the yield logic as well,” he said.
Bitcoin gained some ground after sliding for two consecutive days, rising 1.5% compared to Tuesday’s level at 5 p.m. ET. It traded around $42,400 after falling near $41,000 a day earlier.
In Asia, most major benchmarks tracked the movement of US markets since Tuesday. Japan’s Nikkei 225 index fell 2.1%, while the Shanghai Composite Index fell 1.8%.
Jim McCafferty, joint head of regional equity research at Nomura, said stocks in the Asia-Pacific region were likely to be affected by a number of concerns, including questions about the Fed’s tapering and moves by Chinese regulators.
“In the short term, there’s going to be a lot of volatility,” he said.
Shares of China’s Evergrande Group rose 15% after the ailing real estate giant said it has agreed to sell part of its stake in a Chinese regional bank for more than $1.5 billion.
—Quentin Webb contributed to this article.