Stock futures traded slightly lower on Tuesday evening after a technology-led selloff earlier in the day, with growth stocks giving back more of their 2020 gains after a key policymaker suggested interest rates might need to rise to prevent an economic overheating.
Contracts on the Nasdaq dipped, after the index fell 1.9% during the regular session for its worst day since March. The S&P 500 also ended the session lower lower, while the Dow shook off earlier losses to trade slightly higher.
The sharp move lower in growth stocks came after Treasury Secretary Janet Yellen suggested Tuesday that interest rates might need to be increased to stave off an overheating in the economy, with economic activity picking back up much faster than expected as vaccinations take place and social distancing standards get eased. Some companies have also said that surging demand and supply chain shortages have pushed prices higher. Mentions of inflation on first-quarter earnings calls have surged by 800% year-over-year, according to Bank of America strategist Savita Subramanian.
“I think to some extent the market is now taking a bit of a pause thinking that some of the best news may be behind us at this point on stocks, including the growth stocks, especially as we look to more reopenings,” Rob Haworth, U.S. Bank Wealth Management senior investment strategist. “I think it’s two-fold: One, a great earnings season that people wonder if it will be repeated, and two, looking more to that reopening story.”
Plus, with stocks having reached record highs last week, equities were vulnerable to a pull-back at the slightest trigger, many strategists noted. And as first-quarter earnings season winds down, investors will be left to contemplate the future policy landscape, which may be somewhat less constructive for corporate profits.
“I do think there’s a potential for a short-term bounce in volatility due to those excessive valuations and all of the uncertainty that currently stands with respect to the infrastructure spending bill, ultimately how it’s going to be funded, and certain taxation policies,” Kevin Mahn, chief investment officer at Hennion and Walsh Investment Management, told Yahoo Finance.
“But, beyond the short-term bouts of volatility, there is continued reason for optimism, whether it’s consumer confidence, whether it’s the strength in earnings, recognizing that thus far we have an 86% beat rate for the companies that have reported,” he added. “So there are reasons for optimism, but we would recommend that investors also consider adding diversification to their portfolios to help withstand those short-term bouts of volatility.”
6:13 p.m. ET: ET Tuesday: Stock futures edge lower
Here’s where markets were trading as the overnight session kicked off:
S&P 500 futures (ES=F): 4,157.25, down 1 point or 0.02%
Dow futures (YM=F): 34,018.00, down 2 points or 0.01%
Nasdaq futures (NQ=F): 13,519.00, down 17 points or 0.13%
Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck
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