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Stock futures plunged on Monday, following a session in which the market as a whole hit new record highs, as traders waited for retail data on Tuesday and a policy meeting of the Federal Reserve later this week.
During Monday’s regular session, Wall Street rallied in choppy, directionless trading as investors struggled to balance economic optimism against the steadily rising Treasury yields.
The Dow Jones Industrial Average rose more than 100 points and the S&P 500 index also hit a new high, supported by the signing of a new $ 1.9 trillion stimulus bill that is on the point of stimulating consumer spending and reviving economic growth. Most Americans are on the verge of receiving $ 1,400 stimulus checks, which started arriving over the weekend, and Wall Street economists have already started upping their gross domestic product (GDP) estimates. for the rest of the year, while the recovery will trigger a rebound in consumption. .
Yet Washington’s aggressive spending frenzy and super-accommodative monetary policy have focused increasing attention on soaring deficit spending – which is at least in part why government borrowing costs have started to climb, so even as the Federal Reserve remains committed to fostering growth. through lower yields and higher inflation.
The central bank will deliver its verdict on monetary policy on Wednesday, which should largely confirm a bias towards easier policy.
Last week, the benchmark 10-year Treasury yield hit a pre-pandemic high of around 1.6%, up around 50 basis points in one month. Another warning sign emerged via Bitcoin (BTC-USD), where weekend prices topped $ 60,000, a new high before parrying those gains on Monday.
With strong fiscal and monetary stimulus, BlackRock economists forecast “a much stronger economic recovery after Covid than we would expect in a normal recovery. The rapid upward adjustment in US Treasury yields and a more moderate move in inflation Adjusted yields make sense in this regard and are still consistent with our new nominal theme of “rising prices and government liquidity,” the firm noted.
“The restart strengthens our pro-risk stance over the next six to 12 months and pushes us to focus more on cyclical assets” like stocks and private equity, added BlackRock.
Goldman Sachs economists on Friday predicted the fiscal bailout would give the economy an even bigger boost in 2021, estimating gross domestic product to rise 6% in the first quarter. For that reason, markets will be closely following remarks this week from Fed Chairman Jerome Powell on whether the central bank is increasingly concerned about bond market moves and an economy that could overheat.
However, Goldman noted that “Fed officials are unlikely to see much of a problem. [with rising rates] At a time when financial conditions remain easy, activity is picking up and strong growth impulses should support the economy throughout the year. “
Meanwhile, tech stocks have underperformed the market as a whole, as the gradual reopening of states and towns – and a mass COVID-19 vaccination effort that gains momentum – encouraged investors to abandon the so-called “staying at home” professions in favor of the big names. like Amazon (AMZN), Netflix (NFLX), Apple (AAPL) and Facebook (FB). Soaring interest rates have amplified volatility in the tech sector, as expectations of higher borrowing costs weigh on growing companies.
One of the most watched economic reports this week will be the Commerce Department’s February retail sales print on Tuesday. Consensus economists are hoping retail sales retreated in February after increasing the most in seven months in January.
Specifically, retail sales are expected to have fallen 0.7% month over month, following January’s 5.3% gain.
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6:45 p.mr. AND Monday: Mixed equity futures
Here’s where the markets were trading Monday night:
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S&P 500 Futures (ES = F): 3953.75, -4.50
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Dow Futures (YM = F): 32800, -50
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Future Nasdaq (NQ = F): 13061.75, -7.50
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Javier David is an editor for Yahoo Finance. Follow Javier on Twitter: @TeflonGeek
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