Dow and S&P 500 Poised to Extend Selloff

By Anna Hirtenstein and Xie Yu

U.S. stock futures retreated Thursday, suggesting that the major indexes will tumble for a fourth consecutive day.

Futures tied to the S&P 500 edged down 0.3%, and contracts linked to the Dow Jones Industrial Average lost over 0.5%. Nasdaq-100 futures retreated 0.1% Thursday, pointing to tepid losses for technology stocks after the opening bell.

The major indexes dropped Wednesday, leaving the S&P 500 and Dow suffering their steepest three-day declines since late October.

Investors are jittery after consumer prices surged higher in April, prompting concerns that the Federal Reserve may move on interest rates or scale back bond purchases sooner than expected. Fed officials have repeatedly said that they expect any jump in inflation to be transitory, but some investors aren't convinced. The threat of higher inflation is sapping money managers' appetite for highflying technology shares and other growth stocks.

"The major issue we see is that valuations for many parts of the market are rich," said Salman Baig, a multiasset investment manager at Unigestion.

The prospect of accelerating consumer-price growth is making investors question the valuations of stocks that have been prized by investors because of their earnings potential. "When you have rising inflation, those future cash flows start to need to be adjusted," Mr. Baig said. "People are looking for a place to ride out the storm," he added.

The jump in consumer prices has triggered debates about whether "inflation is actually more of an issue than we were led to believe, and whether the Federal Reserve is going to have to be a little bit more aggressive," said Dwyfor Evans, head of macro strategy for the Asia-Pacific region at State Street Global Markets.

The market for U.S. Treasurys calmed after four consecutive days of selloffs, reflecting less concern about inflationary pressures. The yield on the 10-year Treasury note ticked down to 1.691%. It closed at 1.693% on Wednesday, its highest level in more than a month. Yields drop when bond prices rise.

A Fed official on Wednesday said that the scale of the inflation jump in April was surprising, but more data would be necessary for the central bank to begin scaling back its easy-money policies.

The stabilization in yields could show "that people buy the Fed's view that inflation will be transitory," said Mr. Baig. When "inflationary pressures are building, nominal yields should rise."

The latest weekly jobless claims data, a proxy for layoffs, will be released at 8:30 a.m. ET. Economists surveyed by The Wall Street Journal are expecting 500,000 new applications for unemployment benefits last week, up slightly from a pandemic low of 498,000 a week earlier. Claims have come down from a recent January peak of about 900,000, though they remain more than twice as high as levels seen before the pandemic struck last spring.

Earnings season continues, with Airbnb, Walt Disney, Coinbase and DoorDash expected to post results after markets close.

Bitcoin dropped over 6% to around $51,100, according to CoinDesk, after Tesla Chief Executive Elon Musk said his company had suspended accepting the cryptocurrency as payment for vehicles due to its high carbon footprint. It earlier fell as low as $46,294.72, its lowest price since March 1, according to CoinDesk.

Overseas, the pan-continental Stoxx Europe 600 fell 1.4%.

Among European equities, Burberry fell over 8% after reporting a decline in full-year revenue and a measure of profit. Retail trading platform Hargreaves Lansdown slid more than 5% after it said it has started to see a fall in share-dealing volumes as lockdown measures eased.

Investors continued to sell European government bonds. The yield on the benchmark 10-year German bund climbed to minus 0.104%, while the equivalent U.K. gilt yield rose to 0.911%. Both were at the highest levels since May 2019.

In Asia, most major equity benchmarks declined by the close of trading. Hong Kong's Hang Seng Index lost 1.8%. Indexes in South Korea, Japan, Australia and China also all retreated. Taiwan's benchmark Taiex shed 1.5%, declining for a fourth straight day. That put it in correction territory, meaning it has fallen at least 10% from a recent high.

In Tokyo, shares in SoftBank Group plunged by more than 7%, even after the technology investor reported the highest-ever annual profit for a Japanese company. In a note to clients, Jefferies analyst Atul Goyal said the lack of a new buyback plan was disappointing, after SoftBank concluded an earlier program totaling $23 billion.

Write to Xie Yu at [e-mail]

(END) Dow Jones Newswires

05-13-21 0606ET