US futures rise slightly after S&P 500 slips in bear market

US stock futures edged higher, pointing to moderate gains for major indices after the S&P 500 closed in a bear market for the first time since 2020.

Futures linked to the S&P 500 rose 0.3% after the broad index fell 3.9% on Monday. Nasdaq-100 futures climbed 0.4%, suggesting a moderate rise in tech stocks after the opening bell. Dow Jones Industrial Average futures edged up 0.3%.

Global equities have come under pressure in recent weeks on fears that major central banks will have to act more aggressively than expected to fight inflation. The latest release of consumer price data from the United States further stoked those fears, as it rose from the previous month to 8.6% and hit its highest level in more than four decades. The S&P 500 has fallen for the past four consecutive trading sessions, losing more than 10%. The index is down nearly 22% since its last record high.

“I wouldn’t necessarily read much into a kind of mini reversal. Things have been really oversold and now people are just going to wait for the Fed,” said Colin Graham, Head of Multi-Asset Strategy at Robeco.

The Federal Reserve is expected to release a monetary policy decision on Wednesday, following a two-day meeting. The Wall Street Journal reported on Monday that policymakers were considering a surprise interest rate hike of 0.75 percentage points.

Some investors are likely to do business after such a drop in the markets, Graham said. “Yesterday at one point all stocks in the S&P 500 were down. As long-term investors, we seek value as long as the economic damage is not too great.

Investors are struggling to adjust to powerful market forces: soaring inflation that is eroding consumers’ purchasing power and the prospect of a recession that could hurt corporate profits and tip the weaker towards failure. A bond market indicator, the difference in the yield curve between two-year and 10-year government debt, reversed briefly overnight, signaling that a recession could be imminent. In the European morning, it rose to 0.015 percentage points.

The U.S. yield curve last inverted in April, when short-term Treasury yields rose more than long-term ones on expectations that the Fed could raise rates at a rapid pace following a strong jobs report.

Bond markets were generally more stable on Tuesday. The yield on the benchmark 10-year Treasury fell to 3.345% from 3.371% on Monday, reversing direction after four consecutive days of gains. Prices go up when yields go down.

Yields on some shorter-dated bonds rose further, with two-year bonds rising to 3.326% from 3.279% the day before, after its biggest two-day jump since the week after Lehman Brothers collapsed, according to Deutsche Bank analysis.

The Producer Price Index for May, a measure of inflation for domestic producers, is due at 8:30 a.m. ET. Economists predict an increase from the previous month.

While many markets have been under pressure this year, rising rates have had a particularly strong effect on stocks of losing companies that were once the darlings of the pandemic and other speculative bets. Higher interest rates on safe-haven assets such as government bonds tend to reduce the relative attractiveness of riskier investments – and the perceived value of future cash flows – while increasing borrowing costs for companies.

“I don’t think we’re going to see a V-shaped recovery,” Rick Pitcairn, chief investment officer of Pennsylvania-based multifamily office Pitcairn, said of the stock market. “The way we’re going to rebuild will be in a more low key way – it won’t be to high speculative stocks right away.”

As markets react to interest rate hikes and the threat of a recession, equities are approaching bear market territory. The WSJ’s Gunjan Banerji explains what it takes to push stocks back in a bull market and why it’s hard to predict when they will rally. Illustration: Jacob Reynolds

In pre-market trade, enterprise software company Oracle jumped 12% after reporting a quarterly sales increase that beat analysts’ expectations, led by its cloud computing division. Oil producer Continental Resources rose nearly 8% after billionaire Harold Hamm offered to buy the shares his family does not already own for around $4.3 billion.

Overseas, the pancontinental Stoxx Europe 600 index lost 1.2%. Shares of French IT company Atos fell 24% after its CEO resigned and the company announced plans to split its big data and security division.

Bonds issued by the Greek government, one of the weakest European economies, sold off. The 10-year yield stood at 4.673%, its highest level since November 2018.

In Asia-Pacific trading, Australian stocks dragged losses after the market reopened after a public holiday. The S&P/ASX 200 index in Sydney erased 3.6%, its the biggest one-day percentage drop in more than two years.

The Shanghai Composite Index rose 1%, while Hong Kong’s Hang Seng Index closed flat. Japan’s Nikkei 225 fell 1.3%.

The Japanese yen was little changed, approaching the dollar’s weakest level in 24 years, which it hit on Monday.

Bitcoin, the largest cryptocurrency, remained under pressure after selling off strongly in recent days. It was trading at around $22,100 on Tuesday, losing another 5%. He is 68% from his last record.

In commodities, Brent, the global oil benchmark, gained 0.5% to trade at $122.89.

Write to Anna Hirtenstein at anna.hirtenstein@wsj.com and Dave Sebastian at dave.sebastian@wsj.com

Equities in Asia remained under pressure on Tuesday.


Photo:

Frank Robichon / Shutterstock

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