US Stocks Decline on Monday, Futures Modestly Higher

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Principal Points

• Stock futures advance after yesterday’s moderate losses
• Investors uncertain whether the surge in inflation would persist

Futures contracts tied to the major US equity indexes rose modestly in pre-market hours on Tuesday. Dow Jones futures were up slightly over 100 points or 0.30%, S&P futures were also higher by about 0.30%, while Nasdaq Futures jumped roughly 0.60%. The moderate gains before regular trading arrived after Monday’s session ended with declines across the board as all three stock gauges finished in negative territory.

The move higher today looks to turn the direction of US stocks which kicked off the week with losses, led by continued weakness in the tech sector. The Dow Jones Industrial Average slipped 54.34 points, or 0.16%, to 34,327.79. The S&P500 fell 10.56 points, or 0.25%, to finish the session at 4,163.29. The Nasdaq Composite declined the most, down 50.93 points, or 0.38%, to end Monday trading at 13,379.05.

The weak performance was triggered by the lingering uncertainty over the outlook for inflation and monetary policy. As the earnings season is drawing to a close, investors set their gaze further and anticipate to see whether the jump in inflation will leave a more solid footprint on the market momentum or it will fade away without serious consequences over the market rally this year.

Anticipation for Insights About Inflation Expectations

Big tech names were among the biggest decliners yesterday, with Apple and Netflix down almost 1% apiece. Microsoft dropped 1.2%, while Facebook fell 0.2%. Investors pivoted away from technology stocks that thrived during the pandemic, reaffirming the rotation and reopening trades that have been in fashion so far in the year. Shares of value-heavy stocks remained more robust on Monday as investors expect real-economy sectors to flourish now that the US is emerging from the pandemic.

The Federal Reserve’s position to maintain the current monetary support has been causing some investors to worry over the negative implications of the policies. Inflation above the Fed’s 2% target could force the central bank to taper its bond purchases to allow the economy to cool down. In its prior comments on the market and rising inflation pressures, the Fed has said it expects inflation to be transitory and blow over by the end of the year. The FOMC minutes expected on Wednesday from the last meeting of Fed officials two weeks ago promise to offer insight on policymakers’ views on inflation expectations.

In corporate news, Tesla shed more than 2% after investor Michael Burry, famous for his short bet against subprime mortgages in 2008, revealed he has a big short position on the EV maker. Mr. Burry revealed in a regulatory filing he held bearish put options against 800,100 shares of Tesla worth $534 million by the end of the first quarter. Investors who own put options could profit when the underlying asset falls in price.

Tesla shares year-to-date have dropped more than 20% and the year is getting more turbulent for the carmaker. A slump in sales in China and chip shortages threaten to hurt deliveries for the second quarter. Mr. Burry has long been a Tesla sceptic, saying the company is only profitable due to its reliance on regulatory credits, which he sees as a red flag as more and more companies are now able to secure their credits.