US Stock Futures Slide With Rate-Cut Path at Risk: Markets Wrap
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(Bloomberg) -- US stock futures dipped and Treasuries steadied after Monday’s selloff as traders speculated over the path of US interest rates.
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Contracts on the S&P 500 retreated 0.4%, pointing to the first back-to-back decline in about 30 sessions for the gauge. The yield on 10-year Treasuries was little changed at 4.19% after surging more than 10 basis points at the start of the week.
Monday’s drop in Treasuries fueled a global slump as investors pared back expectations for Federal Reserve rate cuts after officials indicated a preference for easing at a slower pace. The inflationary impact of a possible Donald Trump presidential win is also weighing, given his promised tax cuts and trade tariffs could ultimately entail higher rates.
“This is very clearly linked to trading a victory of the Republicans — and therefore to an agenda which would be much more inflationist than that of the Democrats. We’re in a market that is betting on Trump,” said Christopher Dembik, senior investment adviser at Pictet Asset Management. “The rise in yields is starting to threaten equity markets.”
Bonds Are Selling Off Everywhere as Traders Rethink Fed Pathway
Gold climbed - approaching Monday’s record high - with haven demand coming from traders focused on the conflict in the Middle East and the looming US vote.
Despite the mounting risks, the current winning streak for US stocks ranks among the very best since 1928, according to data compiled by SentimenTrader. Exposure to the S&P 500 has reached levels that were followed by a 10% slump in the past, Citigroup Inc. strategists said.
Tough Call
Even though US equities are expensive, going underweight is a tough call for investors in the environment where S&P 500 reached 47 record highs this year starting from January, said Vera Fehling, DWS Europe chief investment officer.
“If you said then: ‘things are looking quite stretched’ — you would have massively underperformed,” she added. “It’s difficult to explain going into the end of such a year with a significant underweight in US equities.”
European equities appear cheap by comparison and the Stoxx 600 benchmark declined 0.6% on Monday, led by real estate and utilities sectors, which typically suffer when the cost of borrowing money rises.