Bond yields hit two-year highs as stock futures fall

US stock futures fell and bond yields hit two-year highs, reinforcing investors’ fears that rising yields will set back the major technology stocks that have come to dominate the markets.

Futures for the S&P 500 fell 1% the following Tuesday US markets closed on Monday for a holiday. Contracts for the technology-focused Nasdaq-100 fell 1.6% and futures for the Dow Jones Industrial Average fell 0.9%.

Trading day

All times EST

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Technology stocks have come under pressure in January as government bond yields have risen. On Tuesday, the yield on the benchmark 10-year government bond ticked up to 1.827% – the highest level in two years – from 1.771% on Friday. Yields rise when prices fall.

In pre-market trade, shares in the electric car manufacturer Tesla,

Twitter

and

Meta platforms

– formerly known as Facebook – each dropped about 2%.

Shares of

Activision Blizzard

shot up more than 30% before the market after Wall Street Journal reported it

Microsoft

approached an agreement to purchase video game heavyweights, which have been hit by allegations of dishonesty in the workplace.

Several financial companies, including Goldman Sachs, had earnings before the market opened. Profits have begun to ebb with some large banks benefiting from the tumultuous pandemic economy. Shares of Goldman Sachs fell 4% before the market, according to one reported decline in fourth-quarter profits.

Alibaba-listed shares fell 4.3% after Reuters reported that the Biden administration was reviewing the e-commerce giant’s cloud business to determine if it posed a national security risk.

Investors expect one a tight labor market and higher inflation will cause the Federal Reserve to implement more rate hikes this year. The yield on the two-year government bond rose to 1.028% – the highest level since February 2020 – from 0.965% on Friday, a sign of expectations of higher interest rates. Higher returns can reduce the appeal of future earnings that many technology stocks promise.

Interest rate futures markets indicate that investors are betting on four to five rate hikes this year, up from three to four on Friday, according to

CME Group.

“Markets are still trying to find a level of rate hikes. It was not until October that the market expected one rate hike for 2022, and now it expects four,” said Edward Park, chief investment officer at UK investment firm Brooks Macdonald. we’re in the market right now about how Fed policy is going. “

The Cboe Volatility Index – Wall Street’s so-called fear meter, also known as the VIX – ticked up to 21.53, the highest level in a month.

Investors expect the Federal Reserve to implement more rate hikes this year.


Photo:

timothy a. clary / Agence France-Presse / Getty Images

Oil prices rose as geopolitical tensions in the Middle East increased concerns about tight supplies. Futures for West Texas Intermediate, the mainstay of U.S. crude oil, rose 2% to $ 84.96 per share. barrel. If the contracts fall above $ 84.65 per. barrel, it will mark their highest closing level since October 2014. Yemen’s Iran-backed Houthi rebels said they were behind air strikes in the United Arab Emirates Monday as intensified fighting spreads across the region.

Abroad, the pan-continental Stoxx Europe 600 fell by 0.9%, with the largest losses in the technology and travel and leisure sectors. Shares of

GAM Holding

fell 14% after the Swiss asset management firm said it would have a net loss for 2021 equivalent to about $ 33 million.

The rise in government interest rates pushed up bond yields globally. The benchmark 10-year German bottom rate traded as high as minus 0.005% on Tuesday, up from minus 0.061% on Monday, on the verge of crossing positive territory for the first time since 2019, according to

Tradeweb.

Major indices in Asia closed largely lower, although China’s Shanghai Composite received the trend, adding 0.8%. South Korea’s Kospi fell 0.9%, Japan’s Nikkei 225 fell 0.3% and Hong Kong’s Hang Seng fell 0.4%.

The US dollar last year saw its biggest appreciation since 2015. This is good for many US consumers, but it could also put a dent in equities and the US economy. WSJs Dion Rabouin explains. Photo illustration: Sebastian Vega / WSJ

Write to Caitlin Ostroff at caitlin.ostroff@wsj.com

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