In pre-trading activity on Wednesday morning, U.S. stock futures were trading moderately higher as the yield on the 10-year Treasury bond fell slightly from a five-year high, report the Associated Press and other news sources.
Investors’ spirits might be higher at the opening bell in spite of the bludgeoning the stock market has been taking since Friday in the wake of a report from the Commerce Department indicating that retail sales shot up 1.4% in May, for the biggest retail sales gain in nearly a year and a half. The percentage increase easily beat economists’ expectations and seems to be lifting the hearts of investors.
In trading on Tuesday, the stock market ended lower for the third time in the last five sessions, with the Dow Jones Industrial Average posting a triple-digit fall once again, losing 129 points by the closing bell. The Nasdaq and the S&P 500 also closed lower as the 10-year Treasury note yield rose to 5.315%.
“In a liquidity-driven market such as we’re in, bond yields play a critical role,” Michael Malone, a trading analyst at Cowen & Co. in New York, told Bloomberg.
“Bond yields were excessively low. The decline in equity markets isn’t really a surprise, and the reason rates are going up is because the economy is growing strongly,” Andy Lynch, who manages a European stock fund for Schroders in London, told MarketWatch.
Robert Lind, an analyst for ABN Amro in London, was also quoted by MarketWatch as saying, “While real yields have risen significantly from their lows, I don’t believe they are yet high enough to trigger a serious growth problem. Still, I admit real yields could spike higher, which could cause more serious cyclical problems.”
Some investors and market analysts think that the forthcoming expiration of some significant options contracts on Friday is also making the market turgid.
The news about retail sales contrasts with a 0.9% rise in imported goods’ costs and a 2.7% increase in the cost of imported oil. Investors see this contrast as a very good sign, indicating that consumers are not getting hit too hard from very high gasoline prices and have no trouble spending on what they want to, which shows a robust economy.
The Federal Reserve releases its Beige Book report on regional markets at 2PM EST on Wednesday, giving investors some more significant economic data to chew on after an information lull.
“The key consideration for the Beige Book is whether the recent gains in key economic data such as the ISM surveys will be reflected in much more robust comments on the economy. This is doubtful, given the cautious tone that accompanies even good reports from retailers and respondents to ISM surveys,” currency analysts from Societe Generale told MarketWatch.
Yahoo Finance, “U.S. Stocks Head Toward Flat Open”
MarketWatch, “U.S. stock futures turn lower as markets digest data”
Bloomberg, “U.S. Stock-Index Futures Gain as Treasury Bonds Erase Losses”