From the wsj’s “Stock Futures Point to Pullback After Monday’s Rally” posted early Tuesday:
U.S. stock futures edged down Tuesday, suggesting markets are taking a breather after a bout of volatility in both shares and bonds.
Futures tied to the S&P 500 slipped 0.5%, pointing to a retreat for the broad market index after it surged on Monday in its best day since June. Futures linked to the Nasdaq-100 dropped 0.6%, signaling declines in technology stocks after the opening bell.
Investors say their focus is squarely on central bank officials for cues on how monetary policy may shift down the road. That will determine their appetite for government bonds and for inflation-adjusted returns. A flood of easy money by the Federal Reserve since the pandemic hit last spring has helped subdue returns on bonds and fueled a rally in stock markets for much of the past year.
This phenomenon seemed to halt in recent weeks: money managers adjusted their portfolios in anticipation of an economic rebound and a potential increase in inflation, prompting a selloff in government bonds. Yields jumped last week as bond prices fell, leading to jitters in stocks. Bond markets have since stabilized, and stocks surged higher on Monday.
“We’re just taking a breather after yesterday,” said Fahad Kamal, chief investment officer at Kleinwort Hambros.
“The state of the bond market is driving everything,” he added. “The central banks continue to be the real pivot in markets right now: as long as they continue to buy enormous amounts of bonds in the market, the upside move [in yields] is capped.”
My take: Monday’s action covered a multiple of sins. Tuesday can be forgiven if it strays.