Editorial StaffStock futures dropped Thursday morning to extend losses from a day earlier, driven by jitters over a potential shift in monetary policy that might remove some of the stimulus underpinning equity markets.
Contracts on the S&P 500 fell about 0.8% ahead of the opening bell. Earlier, both the S&P 500 and Dow dropped more than 1% to post a back-to-back session of losses. Treasury yields retreated across the long end of the curve, and the benchmark 10-year yield sank back below 1.3%.
Shares of Robinhood (HOOD) dropped more than 8% after the trading platform delivered its first earnings report since going public, with the print pointing to a revenue slowdown in the current period due to seasonal weakness in third-quarter trading. Cisco Systems (CSCO), a Dow component, also saw shares drop after its sales and profit guidance disappointed against some lofty Wall Street expectations.
Equity markets have come under pressure on the back of the Federal Reserve’s July meeting minutes. These suggested central bankers were moving forward with their debate over the timing and scope of the tapering of their crisis-era asset purchase program, with most participants expecting the U.S. economy to make enough of a recovery to meet the “substantial further progress” necessary to trigger a slowdown in purchases by later this year.
“With a growing number of officials now openly discussing the possibility of tapering beginning soon on the back of July’s strong employment report, it looks more likely than not that the wind-down will begin later this year, rather than early next year as we had previously thought,” Andrew Hunter, senior U.S. economist for Capital Economics, wrote in a note.
“Regardless, the minutes also made clear that an earlier taper does not necessarily mean that the Fed will bring forward plans to start raising interest rates, with many officials believing that the FOMC should ‘clearly reaffirm the absence of any mechanical link between the timing of tapering and that of an eventual increase in … the federal funds rate,'” he added.
Some pundits suggested the Federal Reserve’s escalating talk around tapering is at least partially by design.
“The Fed is doing a masterful job of leading us down the taper exhaustion path, so when they actually do taper, we’ll be so exhausted talking about it, it won’t cause the volatility in the market,” Andrew Slimmon, managing director at Morgan Stanley investment management told Yahoo Finance. “That’s what I really think they’re doing: They’re going back and forth and back and forth. And at the end of the day, tapering just means they’re buying fewer bonds than they used to, but they’re still buying bonds.”
Source. Yahoo Finance
