Stock Futures, Government Bonds at the Beginning of March

New York Charles Schwab TD Ameritrade

Stock Futures, Government Bonds at the Beginning of March

It is no secret that investors are closely monitoring the situation to gather information about various topics. Interestingly, stock futures and government bonds climbed on Monday, as investors awaited a number of Federal Reserve speakers as well as data on the manufacturing sector. People should keep in mind that, stock futures tied to the S&P 500 added 1.2% and contracts for the Nasdaq-100 gained 1.5% after a bruising week for technology stocks. As a reminder, the broad advance comes as the yield on 10-year Treasury notes, the benchmark borrowing cost in global debt markets, fell to 1.416% from 1.459% Friday. Importantly, yields fall when bond prices rise.

Interestingly, volatile moves in government-bond markets in recent trading sessions affected stocks and particularly shares of tech companies. As a reminder, a lurch higher in yields last week called into question the prospect of a long period of low interest rates. Importantly, low interest rates underpinned the past year’s booming rally in stocks.

Furthermore, Monday’s decline in yields helped revive investors’ demand for stocks. Nevertheless, money managers remained cautious of further spikes that could spark fresh volatility in share prices.

Stock futures and the Federal Reserve

The Federal Reserve is a powerful institution. If the Federal Reserve does not seek to tamp down expectations of higher inflation, yields could continue to increase, shaking the stock market. Officials from the Federal Reserve, so far suggested the climb in yields reflects expectations for an economic recovery fueled by the vaccine program. Moreover, another factor is the likelihood of additional fiscal stimulus.

Hopefully, the new administration understands the importance of the stimulus package. President Joe Biden urged the Senate to take quick action after the House passed his $1.9 trillion Covid-19 relief package.

It is worth noting that, Democrats are working hard to finish the package before March 14, when certain types of federal unemployment assistance are set to expire.

Importantly, it is the pace at which yields jumped, rather than their outright level, that unsettled many investors.

As mentioned earlier, stock futures, as well as government bonds, strengthened their position at the beginning of March.

Last but not least, improving investor sentiment buoyed overseas markets. The Stoxx Europe 600 surged 1.7%, led higher by shares of retail and travel-and-leisure companies, whose fortunes depend on the reopening of economic activity.

In Japan, the Nikkei 225 added 2.4%. Moreover, China’s Shanghai Composite Index gained 1.2%.


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