U.S. stock futures point lower after last week’s bounce, with Biden and Powell set to talk about inflation

U.S. stock-index futures edged lower Tuesday after a three-day holiday weekend, with rising bond yields taking some air out of a recent bounce.

What’s happening

  • Futures on the Dow Jones Industrial Average YM00, -0.59% fell 244 points, or 0.7%, to 32,914.
  • Futures on the S&P 500 ES00, -0.49% dropped 32.75 points, or 0.8%, to 4,123.
  • Futures on the Nasdaq-100 NQ00, -0.14% decreased 76.75 points, or 0.6%, to 12,601.

Stocks bounced sharply last week, with the Dow Jones Industrial Average DJIA, -0.67% rising 6.2% to snap a run of eight straight weekly losses — its longest since 1932. The S&P 500 SPX, -0.40%, which earlier this month came within a whisker of the arbitrary 20% pullback threshold that marks a bear market, rose 6.6% last week for its biggest weekly gain since March 2020, while the Nasdaq Composite COMP, -0.05%, which fell into a bear market earlier this year, rose 6.8%.

What’s driving markets

Heading into the final day of the month, investors were looking to see if the recovery from the lows of mid-May will continue.

Analysts said last week’s bounce was technically overdue, coming as the selloff that took the S&P 500 to the brink of a bear market on May 19 left the market stretched to the downside by several measures.

The move to the downside saw steep sector selloffs that ranged from -2.6% for consumer staples to 34.3% for consumer discretionary, while the percentage of subindustries trading below their 50- and 200-day moving averages were more than two standard deviations below their 27-year means, noted Sam Stovall, chief investment strategist at CFRA, in a note. The S&P 500 12-month forward earnings-per-share estimates declined to 16.8 times price — down 1.1% from its 20-plus year average and the lowest reading since April 2020.

“These extremes hinted quite loudly that, like the release of an overstretched rubber band, the market was primed for at least a short-term snapback,” Stovall said. “And snap it did…The only question remaining is whether this rally will extend or evaporate. We remain skeptical of this rally’s sustainability.”

Interest-rate policy will be in the spotlight with President Joe Biden set to meet Federal Reserve Chair Jerome Powell in the afternoon. In an op-ed in The Wall Street Journal, Biden said he would not seek to influence the Fed’s decisions.

A hawkish speech delivered Monday by Christopher Waller, a Fed governor, didn’t seem to help sentiment. Waller said he supports half percentage point interest rate increases until there are signs inflation is cooling toward its 2% target. The core reading of the Fed’s preferred inflation gauge was 4.9% in April.

The yield on the 10-year Treasury TMUBMUSD10Y, 2.861% rose 12 basis points to 2.87%.

Waller said the May employment and CPI reports will be key pieces of data “to get information about the continuing strength of the labor market and about the momentum in price increases.” The May jobs report is due on Friday, and the CPI report is set for release the following Friday.

Oil futures jumped CL.1, +3.35%, with the U.S. benchmark trading near $120 a barrel and near its highest since early March after the European Union reached a watered-down agreement that will partially ban imports of Russian crude oil, to be phased over several months.

Investors also are absorbing the news that Shanghai, China’s largest city, set plans to reopen from its COVID lockdown.

See: Watch for IPO-market revival after Labor Day, says NYSE executive

Companies in focus

What other assets are doing

  • The ICE U.S. Dollar Index DXY, +0.34%, a measure of the currency against a basket of six major rivals, rose 0.3%.
  • Bitcoin BTCUSD, +1.62% fell 0.4% to trade near $31,600.
  • The Stoxx Europe 600 SXXP, -0.43% fell 0.5%, while London’s FTSE 100 UKX, +0.31% was up 0.3%.
  • The Shanghai Composite SHCOMP, +1.19% rose 1.2%, while the Hang Seng Index HSI, +1.38% rose 1.4% in Hong Kong and Japan’s Nikkei 225 NIK, -0.33% edged down 0.3%.

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