Dow Futures Rise, Bond Yields Higher—and What Else Is Happening in the Stock Market Today

Fed chair Powell spooked markets on Monday.


Win McNamee/Getty Images

Stocks lifted Tuesday as investors continued to watch developments in the Russia-Ukraine war and shook off remarks from Federal Reserve chair Jerome Powell that the central bank may be headed for more aggressive interest rate policy.

Futures for the


Dow Jones Industrial Average

rose 130 points, or 0.4%, after the index fell 201 points on Monday to close at 34,552.


S&P 500

futures signaled a start 0.3% higher with the


Nasdaq

poised to rise 0.4%.

Overseas, Frankfurt’s


DAX

surged 0.8% and Tokyo’s


Nikkei 225

increased 1.5%.

Fed chair Powell spooked markets on Monday, sending U.S. stocks lower, by saying that the central bank could act more aggressively to fight 40-year high inflation by raising interest rates by more than has been expected.

“Caught between a rock and a hard place, the Federal Reserve sees little option but to try and chip away inflation with even bigger interest rate hikes this year, if price pressures keep mounting,” said Susannah Streeter, an analyst at broker




Hargreaves Lansdown
.

“And there are very few signs of much relief given that the only way has been up for the price of oil in recent days.” 

Powell said that the Fed was prepared to hike its benchmark lending rate in increments of 0.5%, which is more than the standard 0.25%, going forward. The Fed raised rates by a quarter of a percentage point this month and has signaled that as many as six more hikes are coming this year, before more in 2023. Markets are now faced with the prospect of more aggressive policy, which could hurt economic growth.

“Anxiety at how far and how fast the Fed will go hasn’t turned into a full blown tantrum on the bond markets for now, but U.S. Treasuries slid in value and yields spiked, an indication that worries are mounting,” noted Streeter.

The benchmark 10-year U.S. Treasury note popped up to 2.3% on Monday from 2.15%—hitting the highest levels since May 2019. The yield on that bond moved above 2.35% on Tuesday.

Higher bond yields didn’t seem to affect a rise in futures tracking the Nasdaq, which is an index heavily-weighed with tech stocks. Elevated yields discount the present value of future cash, and many tech stocks have market valuations relying on profits years in the future—so a rise in yields often means that tech stocks slip.

Otherwise, markets continue to react to developments on peace talks amid the Russian invasion of Ukraine, which has rocked both equity and commodity markets in recent weeks. The war threatens a downturn in Europe and tough sanctions on Russia, including a U.S. ban on its oil, have sent crude prices as much as 30% higher. 

“Whilst Ukraine undoubtedly remains the most important news story right now, central bank comments dominated the market agenda,” said Jim Reid, a strategist at Deutsche Bank. “On Ukraine, the headline risk around the stilted negotiation progress continued … the Kremlin indicated progress in talks had been less than they would have liked, and no agreements had been reached as of yet.”

In the commodity space, oil prices were holding steady, with futures for U.S. benchmark West Texas Intermediate crude down less than 1% to below $110.

Write to Jack Denton at jack.denton@dowjones.com

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