Stock Futures Edge Down Ahead of Powell's Comments

02/23/2021 | 05:08am

By Joe Wallace

U.S. stock futures edged lower Tuesday as investors awaited Federal Reserve Chairman Jerome Powell's testimony in Congress on the health of the economy.

Futures tied to the S&P 500 ticked down 0.1%. The benchmark stocks gauge on Monday fell for a fifth consecutive day, its longest losing streak since last February. Contracts for the Nasdaq-100 retreated 0.6%, suggesting technology stocks will continue to lead the market lower.

A sharp rise in yields on U.S. government bonds in recent days has sapped investors' appetite for riskier assets, including stocks. Shares in technology companies, which have powered the broader market higher for much of the past year, are seen as particularly vulnerable. That is because many tech companies' valuations are tied to their future earnings potential. Those profits are less valuable in today's terms when investors apply a higher discount rate.

The rise in bond yields "naturally does cause investors and cause markets to re-examine the view on equities," said Paul Jackson, global head of asset allocation research at Invesco. Investing in government bonds is beginning to look more attractive for the first time in months, he said.

But "the level at which bond yields become truly problematic for equities is a long way from where we are now," Mr. Jackson added.

The yield on 10-year Treasury notes ticked up to 1.376%, from 1.370% Monday. Yields rise as bond prices fall.

The move has sharpened focus on Chairman Powell's semiannual report on the economy and monetary policy to Congress. The first of two days of testimony starts with Mr. Powell's appearance before a Senate Committee at 10 a.m. ET.

Mr. Powell is again likely to signal that easy-money policies will remain in place for the foreseeable future. He will probably face questions on the size of the next fiscal stimulus package, interest rates and bond purchases, and the potential for inflation to heat up alongside accelerating economic growth.

European Central Bank President Christine Lagarde on Monday said the ECB was closely monitoring bond yields, comments interpreted by analysts as a sign of discomfort with their recent rise. Mr. Powell is unlikely to follow suit by pushing back on the rise in Treasury yields, according to Remi Olu-Pitan, multiasset fund manager at Schroders.

"At the moment none of those indicators are flashing red -- they are not even amber yet -- but they are not as they were six months ago," she said, referring to the level of yields and expectations of when the Fed is likely to raise interest rates.

Another batch of earnings from major companies are also on tap. Home Depot and Macy's are due to report ahead of the opening bell in New York, followed by payments firm Square and security-software company McAfee after markets close.

The price of bitcoin slid 15% to $47,111.69, according to CoinDesk. The latest bout of volatility in cryptocurrency markets followed comments by Tesla Chief Executive Elon Musk, who said over the weekend that prices for bitcoin and ethereum seemed high.

Tesla shares slid over 4% in premarket trading, after dropping almost 9% on Monday. The electric-vehicle maker earlier this month disclosed that it had bought $1.5 billion in bitcoin. Mr. Musk has also become a prominent cheerleader for cryptocurrencies.

Overseas, the Stoxx Europe 600 shed 0.8% on a busy day for earnings in the region.

InterContinental Hotels Group rose over 3% after the owner of Holiday Inn said it would consider future dividends once the visibility on the pace and scale of the market's recovery improves.

In Asia, Hong Kong's Hang Seng climbed 1% and China's Shanghai Composite Index slipped 0.2% by the close of trading.

Write to Joe Wallace at Joe.Wallace@wsj.com

(END) Dow Jones Newswires

02-23-21 0508ET

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