On Monday, bond yields rose around the world even with the US market closed, and German 10-year bond yields rose three basis points from zero for the first time in almost three years.
Against this background, US stock index futures have fallen sharply today, and traders are preparing for the next company profit and loss reports. Dow Jones futures fell by 274 points or 0.75%. S&P 500 futures fell 1.15% and Nasdaq 100 futures fell 1.7%. Let me remind you that yesterday the US markets were closed due to Martin Luther King Day.
As noted above, Treasury bonds fell, while two-year bond yields soared above 1% for the first time since 2020 due to increased speculation about a rate hike by the Federal Reserve in March this year. The yield on ten-year Treasury bonds rose by seven basis points to 1.85% - the highest level since January 2020. It is worth noting that the yield of short-term bonds is growing faster than the yield of long-term bonds, which makes the yield curve of Treasury bonds flatter. The gap between the yields of two and ten-year bonds this year for the first time turned out to be less than 80 basis points. The yield on benchmark Treasury bonds is expected to be 2.13% by the end of the year.
And if nervousness subsided a little last week after the speech of Federal Reserve Chairman Jerome Powell, it is already obvious that investors are concerned about increased inflation in the United States, which will force the Fed to tighten policy faster than expected.
As for the reports, this week the quarterly figures of 35 companies from the S&P 500 index, including Bank of America, UnitedHealth, and Netflix, will be presented. Goldman Sachs is also going to release its latest quarterly data in the coming hours.
Let me remind you that last Friday such large banks as Wells Fargo, JPMorgan Chase, and Citigroup have already opened the reporting season. The companies showed higher-than-expected profits, which led to a strengthening of the stock market.
To date, 26 companies from the S&P 500 have already reported fourth-quarter earnings. Of these companies, almost 77% published final results that exceeded analysts' expectations. It is expected that the economic background for the fourth quarter will be quite positive, which will support the US stock market at such a difficult moment – when the Federal Reserve is going to tighten monetary policy.
As for the premarket, Gap securities fell by 4.3% after Morgan Stanley downgraded the retailer's rating. Tesla sank 2.7%, and Apple lost more than 1.5%. In general, the technology sector and the largest companies by market capitalization have suffered particularly badly this year, falling by more than 4%.
Omicron also does not give peace of mind. Quarantine measures have already been resumed in some countries to curb the outbreak. According to data compiled by Johns Hopkins University, in New York, the number of new cases per day has been declining on average for seven days since reaching a record earlier this month. In Maryland, the number of infected also decreased by 27% compared to a week earlier.
As for the technical picture of the S&P 500
Bulls need to try very hard to protect the level of $ 4,598, near which the main trade is currently being conducted. If this range remains under control, we can count on bullish momentum and the recovery of the trading instrument to a larger resistance of $ 4,665, which will open up the possibility of updating the levels of $ 4,722 and $ 4,818 in the near future. With a breakdown of $ 4,598, it is best to be patient and wait for the index to decline to larger supports: $ 4,536 and $ 4,470.