Stock futures were lower Wednesday, as traders kept an eye on Treasury yields with inflation concerns simmering.
Futures tied to the Dow Jones Industrial Average fell by 231 points, or 0.6%. S&P 500 futures ticked down 0.6%, while Nasdaq-100 futures also lost 0.6%.
Nvidia shares fell slightly in the premarket, putting them on track for their first decline since the chipmaker released blockbuster earnings last week. Over the three trading days after the report was released, Nvidia surged roughly 20%.
American Airlines slid 8% in the premarket after slashing its sales outlook for the second quarter. Southwest Airlines dipped about 2% in sympathy. Retail brokerage Robinhood added about 3% after announcing a $1 billion share repurchase program.
Wednesday’s move lower in futures comes as the 10-year Treasury note yield ticked higher for a second day, last trading above 4.56%. On Tuesday, the benchmark yield popped above 4.5% — a troublesome level for stock investors — following a Treasury Department auction that was met with weak demand.
“Stocks are getting hit in most major markets as the poor US price action from Tues carries over into Wednesday,” Adam Crisafulli of Vital Knowledge wrote. “The narrative is starting to splinter a bit, with the macro conversation worried about a reacceleration of inflation … while certain industries grapple with the EPS implications of disinflation/deflation.”
The Dow on Tuesday dropped more than 200 points following the move higher in yields. The S&P 500, meanwhile, closed flat while the Nasdaq Composite reached a record above 17,000 thanks to strong gains in Nvidia.
The major averages are on track to close the month with impressive gains, partly propped up by enthusiasm about a better-than-expected quarterly earnings season. The S&P 500 is up 5.4% this month, while the Dow has advanced 2.7%. The Nasdaq is outperforming by a wide margin, up 8.7% in May.
The gains arrive even as traders have lowered their expectations for Federal Reserve rate cuts. Indeed, fed funds futures trading data suggests a nearly 54% chance that rates will hold steady in September, according to the CME FedWatch Tool.
“The number of expected cuts has shrunk, but it’s really shrunk for the right reasons. The economy’s been good. Inflation is progressing,” Tom Lee, head of research at Fundstrat Global Advisors, said Tuesday evening on CNBC’s “Closing Bell: Overtime.” “The reality is that 3%, or even 2.7% inflation is really good for corporate profits. I think the earnings outlook actually is far better than most expected … you can see why there’s upside for stocks.”
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