Stock-index futures gain ground after three-week losing streak

What’s driving markets

Futures are striving to find their footing as Wall Street comes off a three-week losing streak.

“Global markets have recently experienced a series of stumbles due to concerns about China’s economy and higher sovereign bond yields. Last week the S&P 500 dropped 2.1 %, worryingly, with every sector ending in the red,” noted Stephen Innes, managing partner at SPI asset management.

Niether of those factors are providing much succour early Monday. A trimming of interest rates over the weekend by China’s central bank has underwhelmed the market, while the 10-year Treasury yield is up about 4 basis points to 4.29%, holding near 15-year highs.

The rising borrowing costs have been a particular problems for some of the big technology stocks that tend to lead the market, according to Innes.

“Last week, several prominent stocks within the S&P 500, such as
GOOGL,
-1.89%,

TSLA,
-1.70%,

META,
-0.65%,

AMZN,
-0.57%,

MSFT,
-0.13%,

AAPL,
+0.28%,
and
NVDA,
-0.10%,
all underperformed compared to the broader market index. This dip in performance is attributed to the recent surge in interest rates…This upward rate movement has exerted downward pressure on longer-duration assets,” Innes added.

With that in mind, the reception afforded Nvidia’s results, due on Wednesday, may shape market sentiment for a while. The chipmaker is among the stragglers of an earnings season that has generally beaten forecasts but failed to deliver additional bullish propulsion to the market.

“This picture simply means that the fear of a further Fed tightening, prospects of higher interest rates, combined [with] the set of bad news from China simply didn’t let investors enjoy the better-than-expected earnings,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

However, Tom Lee, head of research at Fundstrat, reckons the recent sell-off will be halted at or before Federal Reserve Chairman Jay Powell makes a speech at the Jackson Hole symposium at the end of the week.

“Over our many conversations with institutional investors in the past week, the vast majority cite the rise in interest rates as the most concerning for equities,” Lee wrote in a note published over the weekend.

And he thinks the Fed is worried by the surge in 10-year yields, too, because it represents a meaningful tightening of financial conditions for markets, companies and households.

“I think the Fed likely says something dovish-ish [sic]. Why? Does Fed want to risk another ‘something breaking’ ala Feb 2023? While some look back at August 2022 when Fed Chair Powell’s statement was hawkish and marked the local top in 2022 (stocks fell -19% next 8 weeks), we think the context is the opposite.” Lee concluded

Zoom video Communications
ZM,
+1.42%
will report results after Monday’s closing bell. There are no top drawer U.S. economic data due Monday.