Stock futures dipped on Monday, following a session in which the broader market notched new record highs, as traders looked ahead to retail sales data on Tuesday and a Federal Reserve policy meeting later this week.
During Monday's regular session, Wall Street rallied in choppy, directionless trading, as investors struggled to balance economic optimism against steadily rising Treasury yields.
The Dow Jones Industrial Average rose by over 100 points and the S&P 500 Index also inched to a new high, bolstered by the signing of a new $1.9 trillion stimulus bill that's poised to spur consumer spending and ignite economic growth. Most Americans are poised to receive $1,400 stimulus checks, which began arriving over the weekend, and Wall Street economists have already begun hiking their gross domestic product (GDP) estimates for the remainder of the year, amid expectations that the stimulus will unleash a consumer rebound.
Still, Washington's aggressive spending spree, and super-accomodative monetary policy, has focused growing attention on runaway deficit spending — which is at least part of the reason why government borrowing costs have begun to spike, even as the Federal Reserve remains committed to fostering growth through lower yields and higher inflation.
The central bank will render its verdict on monetary policy on Wednesday, which is widely expected to confirm a bias for more easy policy.
Last week, the benchmark 10-year Treasury yield spiked to a pre-pandemic high around 1.6%, up about 50 basis points in a month. Another warning sign has emerged via Bitcoin (BTC-USD), where prices over the weekend topped $60,000, a new record high before paring those gains on Monday.
With large amounts of fiscal and monetary stimulus backstopping activity, economists at BlackRock are anticipating "a much stronger post-Covid economic restart than what we would expect in a normal recovery. The rapid upward adjustment in U.S. Treasury yields and more muted movement in inflation-adjusted yields make sense in this respect, and are still consistent with our New nominal theme" of higher prices and government liquidity, the firm noted.
"The restart bolsters our pro-risk stance over the next six to 12 months, and makes us lean further into cyclical assets" like stocks and private equity, BlackRock added.
On Friday, Goldman Sachs economists projected that the fiscal rescue package would give the economy even greater impetus in 2021, estimating gross domestic product would expand by 6% in the first quarter. For that reason, markets will closely watch remarks this week from Fed Chair Jerome Powell for hints about whether the central bank is growing concerned about moves in the bond market, and an economy that could overheat.
However, Goldman noted that "Fed officials are unlikely to see much of a problem [with rising rates] at a time when financial conditions remain easy, activity is picking up, and powerful growth impulses are set to support the economy all year."
Meanwhile, technology stocks have underperformed the broader market, as the gradual reopening of states and localities — and a COVID-19 mass vaccination effort that's gathering steam — has encouraged investors to rotate out of so-called "stay at home" trades favoring big names like Amazon (AMZN), Netflix (NFLX), Apple (AAPL) and Facebook (FB). Soaring interest rates has amplified volatility across the tech sector, amid expectations of higher borrowing costs weighing on growth companies.
One of the most closely watched economic reports this week will be the February retail sales print from the Commerce Department on Tuesday. Consensus economists are looking for retail sales to have pulled back in February after surging by the most in seven months in January.
Specifically, retail sales are expected to have fallen 0.7% month-over-month, following January's 5.3% rise.
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6:45 p.m. ET Monday: Stock futures mixed
Here's where markets were trading Monday evening:
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S&P 500 futures (ES=F): 3953.75, -4.50
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Dow futures (YM=F): 32800, -50
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Nasdaq futures (NQ=F): 13061.75, -7.50
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Javier David is an editor for Yahoo Finance. Follow Javier on Twitter: @TeflonGeek
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