Stock Futures Wobble as Yields Extend Their Climb

By Joe Wallace

U.S. stock futures wobbled Friday after February's stronger-than-expected employment report helped government bond yields extend their recent surge.

Futures had been up modestly ahead of the data, before giving up their gains and then trading higher again. Contracts linked to the S&P 500 edged up 0.8% in choppy trading. The broad market index is poised to close out its third week of declines. It was down 1.1% for the week by the close on Thursday, dropping to its lowest level since the end of January.

Contracts tied to the technology-heavy Nasdaq-100 ticked 0.5% higher, after tech stocks dropped on Thursday.

The February jobs report showed the economy added 379,000 new jobs last month, ahead of estimates of 210,000. The unemployment rate was 6.2%, versus the consensus of 6.3%. Those figures add to signs of a slow improvement in the labor market, after data on Thursday showed filings for unemployment benefits reached their lowest level in three months.

Stocks have stumbled in recent weeks as a climb in bond yields has called into question whether low interest rates, which propelled valuations higher for much of the past year, can continue for much longer. Yields, which rise as bond prices fall, have rallied in response to expectations of a quickening pace of growth and inflation as the economy reopens from the coronavirus pandemic.

The yield on 10-year Treasury notes rose again Friday to 1.614%, from 1.547% Thursday. That marked the highest level for the benchmark borrowing cost since February last year. The recent climb in yields came after Federal Reserve Chairman Jerome Powell provided no sign the central bank would seek to stem the rise when he spoke at The Wall Street Journal Jobs Summit.

"It is all about the bond-yield moves. It is all about Jerome Powell," said Edward Park, chief investment officer at Brooks Macdonald. "There is a huge amount of uncertainty in the market at the moment as to whether the inflation that is widely expected in the short term is transient or whether it is more sustained."

Bond yields are likely to keep rising and stocks may remain jittery unless the Fed takes concrete steps to put a cap on yields, according to Mr. Park. "Markets are at their most volatile when they are not sure how monetary policy and fiscal policy is going to react."

Technology stocks have borne the brunt of the shift in sentiment in recent weeks. The Nasdaq Composite Index, a closely watched barometer for the sector, on Thursday fell to its lowest level since Jan. 4. The index ended the day down 9.7% from its Feb. 12 high, putting it just short of correction territory.

Ahead of the bell in New York, shares of Gap rose 4%. Executives at the firm late Thursday predicted a rebound in apparel sales in the second half of the year after a difficult 2020. Norwegian Cruise Line Holdings dropped 7.5% after the cruise operator said it started a public stock offering.

Shares of energy companies including Exxon Mobil and Occidental Petroleum received a boost from rising oil prices after an unexpected decision by OPEC and its partners to roll over production cuts in April.

The jobs report may not sway bond yields much because the data are unlikely to affect the progress of the Biden administration's stimulus package through the Senate, said Lyn Graham-Taylor, senior rates strategist at Rabobank. The Senate on Thursday advanced the $1.9 trillion bill after making a series of adjustments, and is expected to give its approval within days.

Yields are likely to keep heading higher, according to Mr. Graham-Taylor. "So far the Fed's emphasized that it's not loving it, but it is pretty comfortable with it," he said. "In the back of their minds, it is natural for yields to rise a bit: We're not in the eye of the storm as we were."

Oil prices rallied for a second day after OPEC and a Russia-led coalition of oil producers kept most of their production cuts in place, taking the market by surprise. Brent-crude futures rose 2.6% to $68.47 a barrel. The cartel's decision will push the international energy benchmark to $75 a barrel in the second quarter and $80 in the third, analysts at Goldman Sachs Group said.

Overseas, the pan-continental Stoxx Europe 600 ticked down 0.3%. Among individual stocks in the region, London Stock Exchange Group dropped 8.8% after profits fell short of analysts' forecasts in the second half and costs topped expectations.

Major Asian indexes ended the day down. Japan's Nikkei 225 ticked 0.2% lower, while Hong Kong's Hang Seng Index dropped almost 0.5%.

Write to Joe Wallace at [e-mail]

(END) Dow Jones Newswires

03-05-21 0902ET