Market Snapshot: U.S. tech stocks set to skid as bond yields drive higher after Democrats flip Senate seat

This post was originally published on this site

U.S. stock-index futures were mostly lower early Wednesday, with technology stocks lower in pre-market trade, after Democrats scored at least one U.S. Senate seat in run-off elections in Georgia Tuesday, bringing the possibility of regulation and higher corporate taxes.

How are stock benchmarks performing?

On Tuesday, stocks finished higher:

  • The Dow SPX, +0.71% rose 167.71 points, or 0.6%, to 30,391.60
  • The S&P 500 SPX, +0.71% added 26.21 points, or 0.7%, to 3,726.86
  • The Nasdaq Composite Index COMP, +0.95% gained 120.51 points, or 1%, to trade at 12,818.96.
  • The Russell 2000 index RUT, +1.71%  rose 1.8%.
What’s driving the market?

Politics were set to dictate trading action Wednesday after two key runoff elections for U.S. Senate seats in Georgia Tuesday looked set to roil parts of the market. Democrats moved one step closer to control of both houses of Congress, improving the chances of President-elect Joe Biden being able to implement his legislative agenda.

Democrat Raphael Warnock defeated incumbent Republican Kelly Loeffler for one U.S. Senate seat and Democrat Jon Ossoff held a narrow lead over Republican Sen. David Perdue in the other race, according to the Associated Press.

A Democratic sweep of both seats in Georgia would give the party control of the Senate because Vice President—elect Kamala Harris would cast tiebreaking votes as the chamber’s president.

Futures contracts tied to the Nasdaq-100 index were dropping early Wednesday on expectations that a Democrat-controlled Congress would lead to higher taxes and tighter regulations on technology giants.

U.S. bond yields were surging, also weighing on tech stocks and the broader market, as fixed-income investors wager that a Democratic agenda would increase government spending to combat COVID-19’s impact on the economy, likely pushing out more debt and dragging down the value of existing Treasurys.

Tech stocks have enjoyed gains in the past year partly because of the low interest rate environment that has both made it easier for individual investors to justify owning pricey, growth stocks that don’t pay rich dividends against meager bond yields. But the 10-year Treasury note early Wednesday was yielding over 1%, around its highest level since March.

“The election tips the balance of the Senate in favour of the Democrats, if we include the VP, which leads naturally to the assumption that there will be another slug of fiscal stimulus to come early this year,” wrote Aegon Asset Management’s fixed-income manager Nick Chatters.

But it’s important to keep some perspective on bond yields, Chatters added, noting that the central bank will likely help keep bond yields in check.

“Whilst it is interesting to talk about fiscal stimulus, and this is important for growth, the main driver of government yields remains the policy rate,” Chatters said. “The channel to higher policy rates is via employment and inflation in the US, and this channel has long and uncertain lags. So, for treasuries, this is important, but not as important as the Fed.”

Bank stocks were rising Wednesday as the yield curve, the spread between short-term bonds and their longer-term counterparts, was widening , a move that tends to be good for the business models of financial institutions.

In U.S. economic data, the Automatic Data Processing report on private sector employment showed the first drop in jobs since April. Private-sector jobs fell by 123,000, ahead of the more closely followed Friday employment report from the Labor Department.

Minutes of the Federal Reserve’s last meeting, which will be pored over for how the central bank communicates its view of the economic outlook, is due to be released at 2 p.m.

A flash composite reading of U.S. purchasing managers indexes are due at 9:45 a.m., while a report on factory orders will be released at 10 a.m.

On the coronavirus front, the U.S. counted at least 238,763 new cases on Tuesday, and at least 3,648 people died, according to a New York Times tracker. In the last week, the U.S. has averaged 219,650 cases a day.

Which companies are in focus?
  • Shares of JPMorgan Chase &Co. JPM, +0.54% were more than 3% higher in premarket trade as investors bet on a steeper yield curve. Shares of Bank of America Corp BAC, +0.77%. gained 3.6%.
  • Tech giants lost ground in the premarket session: Amazon.com Inc. AMZN, +1.00% shares were down 1.8%, Facebook Inc. FB, +0.75% shares lost 2.3%, and Alphabet Inc. GOOG, +0.73% shares fell 1.9%.
  • Clean-energy companies also surged in the premarket session. SolarEdge Technologies Inc. jumped 3.9%, and TPI Composites Inc., TPIC, +2.91% which makes wind-power parts, climbed 2.7%.
  • Tesla Inc. TSLA, +0.73% shares were more than 3% higher before the bell, near $760, as Wall Street analysts remained divided over whether the company’s price target should be closer to $800 or $200.
What are other markets doing?
  • The 10-year Treasury note TMUBMUSD10Y, 0.994% surged above 1% for the first time since the coronavirus pandemic began as traders bet on stronger inflation and more debt issuance, both of which would erode the value of outstanding bonds.

Read next: Here’s how bitcoin could soon be worth $146,000 according to JPMorgan

Add Comment