Stock futures open mixed after Nasdaq’s worst day since March

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Stock futures began the overnight session mixed Monday evening, with contracts on the Nasdaq extending declines. 

During the regular trading day, the Dow briefly topped 35,000 for the first time ever before erasing gains to end in the red. The Nasdaq dropped 2.6% to post its worst day since March. The S&P 500 also dropped more than 1%, with technology stocks coming under heavy selling pressure as traders rotated away from high growth stocks that could be impacted by rising inflation during the recovery out of the pandemic. 

With a strong quarterly earnings season winding down – aside from a couple notable names including Disney (DIS) reporting later this week – investors are taking stock of the next catalysts for markets, with inflation concerns a key focal point. 

According to data from Bank of America, mentions of inflation have increased nearly 800% year-over-year in quarterly earnings calls and reports. Bank of America equity strategist Savita Subramian said that strong earnings, rising inflation and improving corporate sentiment “all point to a continued rotation into Value.”  

“We have an accelerating growth environment with the prospects for some inflation. And for investors, when they think about inflation, they tend to move away from tech stocks, because they think of tech stocks as longer-duration assets in which you’re not going to be paid well into the future, and they’d instead rather own parts of the market that are more highly correlated with nominal GDP, ” Brian Levitt, global market strategist for Invesco, told Yahoo Finance. “What we’re going through right now is a reversion back to where we likely otherwise would have been had it not been for the coronavirus outbreak. In that reversion, you’ll see more economic sensitive names outperform.”

“But it doesn’t change the long-term structural story,” he added. “The long-term structural stories, all the shifts that are taking place in society, they don’t change. And those tech stocks are on the cutting edge of it, so they were bound for some type of volatility or some type of correction, particularly if inflation concerns increased.”

This week, investors are set to also receive the latest monthly consumer price index and producer price index from the Bureau of Labor Statistics, which are each expected to reflect a strong jump in prices over last year’s pandemic-depressed levels. The sustainability of these inflationary trends will ultimately guide the Federal Reserve’s monetary policy decisions, determining whether they will maintain their current accommodative policies that have boosted both the economy and underpinned asset prices, or pull back some of their support. 

“One of the big questions of course is, how does the Fed respond to all this inflationary pressure out there, and how long can they hold onto this concept of being transient before they have to start saying, we’re going to either pull back on quantitative easing asset purchases, or we’re going to have to start raising the Fed funds rate,” Robert Dye, Comerica Bank chief economist, told Yahoo Finance. “They’re going to telegraph that well in advance, but I don’t know if they’re going to be able to hold out until the end of this year like some in the Fed have implied.” 

6:14 p.m. ET: Stock futures open mixed

Here’s where markets were trading as the overnight session kicked off: 

  • S&P 500 futures (ES=F): 4,180.75, down 2.75 points or 0.07%

  • Dow futures (YM=F): 34,678.00, up 10 points or 0.03%

  • Nasdaq futures (NQ=F): 13,327.00, down 29.75 points or 0.22%

View of the New York Stock Exchange (NYSE) at Wall Street on November 16, 2020 in New York City. - Wall Street stocks rose early following upbeat news on a coronavirus vaccine and merger announcements in the banking and retail industries. (Photo by Angela Weiss / AFP) (Photo by ANGELA WEISS/AFP via Getty Images)

View of the New York Stock Exchange (NYSE) at Wall Street on November 16, 2020 in New York City. – Wall Street stocks rose early following upbeat news on a coronavirus vaccine and merger announcements in the banking and retail industries. (Photo by Angela Weiss / AFP) (Photo by ANGELA WEISS/AFP via Getty Images)

Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck

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