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Nasdaq futures retreat as bond yields back up and energy prices surge

U.S. stock futures on Tuesday pointed to a second-day of tech company-led declines, as investors react to the backup in bond yields and surging energy prices.

What’s happening

On Monday, the Dow Jones Industrial Average
DJIA,
+0.21%

rose 71 points, or 0.21%, to 34869, while the S&P 500
SPX,
-0.28%

declined 12 points, or 0.28%, to 4443, and the tech-heavy Nasdaq Composite
COMP,
-0.52%

dropped 78 points, or 0.52%, to 14970.

What’s driving markets

Investors have been shunning government bonds since last week’s Federal Open Market Committee meeting, as traders brought forward expectations for the first rate hike into late 2022. Markets are also giving roughly 50% odds the European Central Bank will join the Fed with a rate hike next year.

The rates speculation is helping the U.S. dollar gain ground, as the dollar index
DXY,
+0.26%

is now just 1% below its 52-week intraday high.

Fed Chair Jerome Powell is speaking on Tuesday in front of the Senate Banking Committee with Treasury Secretary Janet Yellen, on the government’s response to the coronavirus pandemic, and is due on Wednesday to speak at an ECB event.

“Powell would have to make some very strong arguments now to stop the current rise in yields,” said Mark Grant, chief global strategist at B. Riley Financial. “The 10 year Treasury
TMUBMUSD10Y,
1.525%

has now broken through its technical resistance and things could get problematical.”

Grant says investors should be selling bonds, and using yield-paying exchange-traded and closed-end funds as income substitutes.

Energy markets are another source of concern, as Europe and Asia fight for natural-gas supplies. The lead natural-gas contract
NG00,
+6.98%

has surged 138% this year.

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