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Stock market set for skid lower ahead of testimony by Fed’s Powell on economy

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Stock-index futures were mostly lower Tuesday, with tech shares continuing to lead the way down, as investors monitored a sharp rise in bond yields and prepared for testimony by Federal Reserve Chairman Jerome Powell on the economic outlook.

What are major benchmarks doing?
  • Futures on the Dow Jones Industrial Average
    YM00,
    -0.14%

    were off 10 points, or less than 0.1%, at 31,456.

  • S&P 500 futures
    ES00,
    -0.69%

    were down 19.85 points, or 0.5%, at 3,853.75.

  • Nasdaq-100 futures
    NQ00,
    -1.85%

    dropped 210 points, or 1.6%, to 13,014.25.

Big losses for tech shares left the Nasdaq
COMP,
-2.46%

sharply lower Monday, falling more than 2%, while also weighing on the S&P 500
SPX,
-0.77%
.
The S&P 500 suffered its fifth straight loss, the index’s longest losing streak since a seven-day skid that ended last Feb. 28. The Dow
DJIA,
+0.09%
,
meanwhile, benefited from a rotation to more cyclically oriented stocks, eking out a gain of 27.37 points, or 0.1%.

What’s driving the market?

A sharp rise in Treasury yields has captured the attention of investors, spelling trouble for tech and other previous highfliers. Higher yields make bonds a more viable alternative to stocks, particularly those that have seen their valuations stretched.

Meanwhile, shares of companies more dependent on the economic cycle have benefited, buoyed by expectations for a pickup in growth as the economy more fully reopens courtesy of aggressive fiscal stimulus, vaccine rollouts and falling COVID-19 cases.

Powell, at 10 a.m. Eastern, is set to begin the first of two days of congressional testimony. Investors will be eager to hear his remarks on the rise in bond yields and inflation expectations, though the Fed chief has previously emphasized the central bank’s determination to hold off on pulling back on monetary stimulus until inflation has surpassed its target of 2%.

Powell “will either make or break the day for investors,” said Ipek Ozkardeskaya, senior analyst at Swissquote. Powell is likely to reiterate the Fed’s support for financial markets and the economy until substantial progress is made in improving the jobs market, but he’s also certain to be questioned about rising inflation expectations, particularly after the sharp rise in the producer-price index last month.

“So the investor mood will essentially depend on Powell’s conviction to maintain his ultraloose monetary policy stance and the feasibility of carrying on with such a soft hand under the actual market circumstances,” Ozkardeskaya said.

Read: Climbing bond yields globally put central banks ‘in a bind,’ warns economist

Meanwhile, rising yields are progressively making bonds viable alternatives to stocks, especially the equities that led the market higher after the onset of the COVID crisis, said Scott Knapp chief market strategist at CUNA Mutual Group.

“While very early in a process that has no guarantee it will continue, market sentiment is moving from ‘there is no alternative to stocks’ to ‘stocks look like the less-attractive alternative,’” he said. “Only time will tell if markets stay on this path.”

In One Chart: Can the bull market in stocks survive rising inflation, bond yields? Here’s what history says

On the fiscal front, the House Budget Committee on Monday approved a $1.92 trillion bill to carry out President Joe Biden’s coronavirus relief plan, a first step toward likely House passage by the end of the week. While the ultimate package is likely to shrink, analysts expect its final price tag to come in not far below Biden’s $1.9 trillion proposal.

Bitcoin
BTCUSD,
-11.26%

continued to drop sharply from its high above $50,000 after Treasury Secretary Janet Yellen on Monday called the cryptocurrency an “extremely inefficient” way to conduct transactions.

Read: A tangled market web of Tesla-bitcoin-ARK Investment could spell trouble for investors, warns strategist

The S&P CoreLogic Case-Shiller home price index showed house prices rose 10% in December. A consumer-confidence index is set for release at 10 a.m.

Which companies are in focus?
What are other markets doing?
  • The yield on the 10-year Treasury note
    TMUBMUSD10Y,
    1.379%

    continued its rise, up 1.4 basis points at 1.371%. Yields and bond prices move in opposite directions.

  • The ICE U.S. Dollar Index
    DXY,
    +0.17%
    ,
    a measure of the currency against a basket of six major rivals, was up 0.2%.

  • Oil futures gave up early gains, with the U.S. benchmark
    CL.1,
    -0.57%

    down 0.1% near $61.65 a barrel. April gold futures
    GCJ21,
    -0.08%

    were up marginally at $1,808.50 an ounce.

  • In overseas stock trading, the pan European Stoxx 600
    SXXP,
    -0.71%

    dropped 0.7% and London’s FTSE 100
    UKX,
    -0.10%

    was off 0.1%. The Shanghai Composite
    SHCOMP,
    -0.17%

    fell 0.2%, while Hong Kong’s Hang Seng Index
    HSI,
    +1.03%

    rose 1%.

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