Things are looking down again for Wall Street today, with US futures pointing lower ahead of the open later. S&P 500 futures are down by 0.3% with Nasdaq futures down by 0.6% currently.
On the charts, the fall this week isn’t all too damaging after the jump higher in August. However, there is plenty of caution up in the air – not least with the surge higher in global bond yields in the past week.
For some context: The tectonic shift that is taking place in the bond market
US 10-year yields are continuing to push up, rising to 4.81% now – the highest since October 2023. And that is being accompanied by a surge higher in yields in the likes of Europe and Japan too.
It is not so much a singular event but a wave that is taking over, and that can get a little spooky for broader markets.
And typically, equities don’t like when yields push higher. It becomes even more of a problem especially when it is due to inflation and/or fiscal concerns, which is the key reasoning behind the latest move.
That forces market players to demand a higher risk premium and that translates to a higher opportunity cost in owning expensive stocks. In the case of tech shares, suddenly valuations and earnings multiples become harder to justify. Hence, why they are more sensitive to a move up in yields.
So far this week, the drop in Wall Street can be said to be rather contained – even with the indicated losses at the open later. But if bond yields continue to press higher, even more than they already have, it may only be a matter of time before we see a harder hit to stocks.
Watch this space.
This article was written by Justin Low at investinglive.com.