U.S. stock futures fell Friday morning to extend losses from the prior session, as concerns over the Federal Reserve's ability to bring down inflation while maintaining solid economic activity resurged. Investors also looked ahead to a key report on the state of the labor market's recovery.
Contracts on the S&P 500 fell by about 0.5% heading into the opening bell. This came after the index shed 3.6% on Thursday, as technology stocks underperformed. The Nasdaq dropped 5% for its worst day since June 2020, and the Dow lost more than 1,000 points.
Stocks' violent swing from gains Wednesday to losses Thursday came as investors further appraised the implications of the Federal Reserve's latest telegraphed monetary policy path forward. While investors momentarily cheered Fed Chair Jerome Powell's suggestions that the central bank was not considering raising rates by a more drastic 75 basis points at a time, they have also had to consider whether relatively less aggressive hikes will ultimately be able to bring down inflation currently running at the hottest levels since the 1980s.
"[Wednesday], I think the markets had a sense of relief that maybe Powell took 75 basis points off the table for further rate hikes, suggesting the Fed might take a more mild path," Jeffrey Kleintop, Charles Schwab chief global investment strategist, told Yahoo Finance Live on Thursday. "But [Thursday], I think the market's recognizing that there are risks associated with that — higher inflation, maybe."
"That's certainly what we're seeing here with [Treasury] yields spiking higher. And to me, this is an enduring theme, this isn't just a one-day phenomenon," Kleintop added. "If you look all the way back to August of 2020, there's been one major theme in the markets, and that is short-duration stocks, meaning low price to cash flow, have been outperforming longer-duration stocks, or high price to cash flow ... and that is a trend that's going to continue here."
Treasury yields on the long end of the curve spiked on Thursday, and the benchmark 10-year yield rose above 3.03%. The ongoing move higher in Treasury yields and borrowing costs has weighed on growth and technology stocks, which are valued heavily on their future earnings potential.
Elsewhere, investors are also looking ahead to Friday's monthly jobs report, which is expected to reaffirm the central bank's assessment that the U.S. labor market remains extremely tight. Non-farm payrolls are expected to have risen by 380,000 in April, which would be a slight slowdown compared with March but still a solid month of job growth. And the unemployment rate is expected to dip to 3.5%, which would match February 2020's level for the lowest since 1969.
"The job market is very tight ... there's tons of geopolitical impacts, especially on things like energy and food, which creeps into everything else. Supply chains remain challenged, and we have now Chinese COVID shutdowns which make it even more stressed," Paul Kim, Simplify Asset Management CEO, told Yahoo Finance Live on Thursday. "Bottom line is, there's too much demand for goods and services and not enough supply. And the Fed can't solve those real-world problems, and I think that's what's solving this indigestion."
"I don't think we've hit the bottom yet, simply because we're just starting the hiking process," Kim added. "There's arguably hundreds of basis points to go."
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7:35 a.m. ET Friday: Stock futures fall as traders await jobs report
Here's where stocks were trading Friday morning:
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S&P 500 futures (ES=F): -22.5 points (-0.54%) to 4,120.75
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Dow futures (YM=F): -126 points (-0.38%) to 32,784.00
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Nasdaq futures (NQ=F): -95.5 points (-0.74%) to 12,762.50
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Crude (CL=F): +$2.08 (+1.92%) to $110.34 a barrel
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Gold (GC=F): +$8.20 (+0.44%) to $1,883.90 per ounce
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10-year Treasury (^TNX): +2.5 bps to yield 3.093%
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6:01 p.m. ET Thursday: Stock futures open little changed
Here's where markets were trading Thursday evening:
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S&P 500 futures (ES=F): unchanged 4,143.25
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Dow futures (YM=F): -12 points (-0.04%) to 32,898.00
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Nasdaq futures (NQ=F): +15 points (+0.12%) to 12,873.00
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Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter.
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