(Bloomberg) — US stock futures dipped and Treasuries steadied after Monday’s selloff as traders speculated over the path of US interest rates.
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Contracts on the S&P 500 retreated, pointing to the first back-to-back decline in about 30 sessions for the gauge. The yield on 10-year Treasuries added one basis point to 4.21% after an 11 basis-point surge at the start of the week.
Investors are paring back their expectations for Fed rate cuts after central bank officials indicated a preference for reducing rates at a slower pace after recent resilient economic data. The inflationary impact of a possible Donald Trump presidential win is also weighing, given his promised tax cuts and trade tariffs could ultimately entail higher rates.
“This is very clearly linked to trading a victory of the Republicans — and therefore to an agenda which would be much more inflationist than that of the Democrats. We’re in a market that is betting on Trump,” said Christopher Dembik, senior investment adviser at Pictet Asset Management. “The rise in yields is starting to threaten equity markets.”
Bonds Are Selling Off Everywhere as Traders Rethink Fed Pathway
Gold rose – approaching Monday’s record high – with haven demand coming from traders focused on the conflict in the Middle East and the looming US vote.
Despite the mounting risks, the current winning streak for US stocks ranks among the very best since 1928, according to data compiled by SentimenTrader. Exposure to the S&P 500 has reached levels that were followed by a 10% slump in the past, Citigroup Inc. strategists said.
Tough Call
Even though US equities are expensive, going underweight is a tough call for investors in the environment where S&P 500 reached 47 record highs this year starting from January, said Vera Fehling, DWS Europe chief investment officer.
“If you said then: ‘things are looking quite stretched’ — you would have massively underperformed,” she added. “It’s difficult to explain going into the end of such a year with a significant underweight in US equities.”
European equities appear cheap by comparison and the Stoxx 600 benchmark declined 0.8% on Monday, led by real estate and utilities sectors, which typically suffer when the cost of borrowing money rises.
So far about 47% of MSCI Europe companies reported results below expectations while only 27% delivered beats, according to data compiled by Bloomberg Intelligence. L’Oreal is set to report earnings later today, with analysts watching the impact of Chinese economic weakness on the stock.
Corporate Highlights:
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Cheesecake Factory Inc. gained as much as 5.2% in after-hours trading Monday after a report that activist investor JCP Investment Management has built a stake in the restaurant chain.
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Medpace Holdings Inc. dropped 12% in postmarket trading after the health care services company cut its revenue forecast for the full year.
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Germany’s SAP rose as much as 5.6% after it delivered a beat on several key metrics in the third quarter and boosted some elements of its guidance for the full year.
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Hyundai Motor India Ltd. shares dropped in their Mumbai debut on Tuesday after the company raised $3.3 billion in the country’s largest-ever initial public offering. IPOs for Tokyo Metro Co. and Horizon Robotics Inc. were met with robust demand.
Key events this week:
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ECB’s Christine Lagarde is interviewed by Bloomberg Television, Tuesday
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BOE’s Andrew Bailey as well as ECB’s Klaas Knot and Robert Holzmann to speak at Bloomberg Global Regulatory Forum in New York, Tuesday
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Philadelphia Fed President Patrick Harker speaks, Tuesday
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Canada rate decision, Wednesday
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Eurozone consumer confidence, Wednesday
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US existing home sales, Wednesday
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Boeing, Tesla, Deutsche Bank earnings, Wednesday
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Fed’s Beige Book, Wednesday
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US new home sales, jobless claims, S&P Global Manufacturing and Services PMI, Thursday
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UPS, Barclays earnings, Thursday
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Fed’s Beth Hammack speaks, Thursday
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US durable goods, University of Michigan consumer sentiment, Friday
Some of the main moves in markets:
Stocks
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S&P 500 futures fell 0.4% as of 7:27 a.m. New York time
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Nasdaq 100 futures fell 0.5%
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Futures on the Dow Jones Industrial Average fell 0.4%
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The Stoxx Europe 600 fell 0.6%
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The MSCI World Index fell 0.2%
Currencies
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The Bloomberg Dollar Spot Index was little changed
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The euro rose 0.1% to $1.0828
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The British pound was little changed at $1.2980
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The Japanese yen was little changed at 150.87 per dollar
Cryptocurrencies
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Bitcoin fell 0.5% to $67,391.1
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Ether fell 1.4% to $2,636.43
Bonds
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The yield on 10-year Treasuries was little changed at 4.20%
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Germany’s 10-year yield advanced four basis points to 2.32%
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Britain’s 10-year yield advanced two basis points to 4.16%
Commodities
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West Texas Intermediate crude rose 0.9% to $71.22 a barrel
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Spot gold rose 0.5% to $2,734.09 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Jason Scott, Winnie Hsu, Abhishek Vishnoi and Aya Wagatsuma.
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