Stock Futures Slip, Signaling More Market Volatility


U.S. stock futures edged lower, signaling that the market’s bruising start to the year is set to continue, as investors prepared for a Federal Reserve meeting and tracked tensions between the West and Russia over the military buildup on the border with Ukraine.

Futures for the S&P 500 fell 0.4% Monday, after the benchmark index endured its third consecutive and biggest weekly drop since March 2020. Contracts for the technology-focused Nasdaq-100 lost 0.6% and Dow Jones Industrial Average futures edged down 0.2%. Stock futures can be volatile and don’t always indicate where indexes will land at the opening bell.

Ahead of the bell in New York, Tesla, due to file earnings Wednesday, lost 3.6%. Shares of Moderna and

Pfizer

also lost more than 3% premarket, while chip company

Nvidia

fell 2.9%.

In the bond market, the yield on 10-year Treasury notes slipped, falling to 1.728% from 1.747% Friday. Yields have risen this year as bond prices have fallen, a selloff that has rippled through financial markets by punishing speculative bets on stocks and cryptocurrencies that took off when the Fed rushed to stimulate the economy in the early days of the pandemic.

The losses continued early Monday. Bitcoin traded at about $33,623, down 8.4% from its 5 p.m. ET level on Friday. Cathie Wood’s Ark Innovation ETF, a big winner in 2020, fell 1.9% in premarket trading.

The biggest single factor driving yields up and stock prices down is the expectation that the Fed will raise interest rates multiple times in 2022 to rein in inflation, which is running at its fastest pace in 40 years. The central bank is set to gather for a two-day meeting Tuesday. At its conclusion on Wednesday, Chairman

Jerome Powell

is expected to signal that rates will likely rise as soon as March.

The central bank is concerned fast-rising consumer prices will become self-reinforcing by feeding into expectations of higher inflation, said Lyn Graham-Taylor, senior rates strategist at Rabobank. “It is talking about tightening aggressively to get on top of that.”

Mr. Graham-Taylor said he thinks inflation will fall this year and that the Fed won’t raise rates as many times as the market expects, pulling down 10-year government-bond yields.

Fears of a possible Russian invasion of Ukraine also weighed on markets at the start of the week, analysts said. The State Department on Sunday instructed the families of U.S. diplomats in Ukraine to leave the country, while the White House is considering sending several thousand troops to Europe.

Sebastien Galy, senior macro strategist at Nordea Asset Management, said a conflict and possible consequences—including the closure of U.S. financial system to Russian banks—would play out in markets in unpredictable ways. “The closer you get to the cliff, the more nervous [the market] is,” Mr. Galy said. “We don’t have the information to trade.”

Russia’s rouble fell 1.6% to trade at 78.86 to the dollar on Monday.

In the U.S., earnings season continues, with results due from

Halliburton,

International Business Machines

and

Steel Dynamics

on Monday, followed by General Electric, Microsoft, Apple and Tesla later in the week. About a fifth of companies on the S&P 500 have filed results, and 82% have beaten analysts’ expectations for earnings per share, according to FactSet.

The U.S. dollar last year saw its largest increase in value since 2015. That’s good for many American consumers, but it could also put a dent in stocks and the U.S. economy. WSJ’s Dion Rabouin explains. Photo illustration: Sebastian Vega/WSJ

Oil prices, which had defied recent pressure on broader markets by shooting higher since mid-December, edged down. Brent crude futures, the international energy benchmark, fell 0.3% to $87.70 a barrel.

International stock markets fell, following Wall Street lower. The Stoxx Europe 600 lost 2.4%, led down by shares of travel, leisure, construction and technology companies.

Unilever,

however, jumped 6.2% after reports that activist hedge fund Trian Fund Management had bought a stake in the packaged-food and consumer-goods company in the wake of its failed bid for part of

GlaxoSmithKline.

Vodafone Group

rose 4.7% after Reuters reported that the telecom is in talks with Iliad to combine their units in Italy.

Asian markets were mixed, as the prospect of higher U.S. interest rates pushed investors to reassess valuations of fast-growing technology companies. Hong Kong’s Hang Seng fell 1.2%, the Shanghai Composite Index was flat and Japan’s Nikkei 225 rose 0.2%.

Chinese internet stocks came under pressure. Hong Kong-listed shares of Alibaba Group and JD.com fell 6.3% and 5.6%, respectively.

Still, Frank Benzimra, head of Asia equity strategy at Société Générale, said investors were returning to the battered Chinese internet sector, drawn by relatively low valuations and a changing regulatory environment. “It seems that there is some stabilization in the regulation framework. Recent news has not been all bad for the Chinese internet sector,” he said.

The prospect of higher U.S. interest rates continued to weigh on global markets.



Photo:

bertha wang/Agence France-Presse/Getty Images

Write to Rebecca Feng at rebecca.feng@wsj.com and Joe Wallace at joe.wallace@wsj.com

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