Stock futures opened flat to slightly higher Tuesday evening after a tech-led selloff during the regular trading day. Concerns over rising Treasury yields and sparring among Washington lawmakers over the debt ceiling and government funding weighed heavily on equities.
Contracts on the Nasdaq ticked up. The index closed out Tuesday’s regular session lower by 2.8%, posting its biggest drop since March. The S&P 500 and Dow also fell sharply.
The decline in technology stocks came as Treasury yields rapidly rose to multi-month highs, with the swift move higher in borrowing costs pressuring valuations for growth and technology stocks. The yield on the benchmark 10-year note spiked to as much as 1.56%, or its highest level since June. The 10-year yield has also risen markedly over a relatively short period of time, gaining more than 16 basis points from its low from last Friday to its peak on Tuesday.
Amid the moves, Amazon (AMZN) shares dropped 2.6% Tuesday afternoon for a back-to-back session of declines, and other mega-cap technology stocks also slid.
“A lot of Big Tech is overpriced,” Teddy Parrish, CEO and chief investment officer of Parrish Capital, told Yahoo Finance on Tuesday. “Those valuations are going to have to go a little lower in one or two ways: They either sell off, or earnings continue to go up and the stocks trade sideways. You can have a little of both, but to look at some of these larger tech companies that aren’t growing nearly as fast as their P/E [price-to-earnings] multiples might imply, I think that a lot of them are ahead of themselves.”
Some strategists suggested the latest move lower on Tuesday may not spark a deeper drawdown or formal correction in the very near-term. Cyclical sectors including energy and industrials outperformed on Tuesday, buoyed by rising commodity prices as heightened inflation expectations pushed up prices of everything from crude oil to cotton so far this week.
“I don’t think it’s the start of a correction necessarily, but certainly we’ve seen rotational corrections throughout the entirety of this year,” Art Hogan, National Securities Corporation chief market strategist, told Yahoo Finance of Tuesday’s market moves. “This feels much more like a realignment. So, obviously we get strange machinations in the markets towards the end of a quarter and that’s knocking on the door tomorrow.”
“We certainly have enough of a basket of concerns in general about the future, whether it’s inflation or how sticky that will be, the Fed’s tapering [and] what that might mean towards earnings … and certainly what’s going on in Washington and what they can and can’t accomplish this week,” he added. “I think you bundle all that together with yield on the 10-year that’s risen pretty significantly in a short period of time, and I really think it’s about the pace, not the ultimate level.”
In Washington, lawmakers are racing to pass legislation to fund the government beyond the end of the fiscal year on Thursday. Republican lawmakers have balked at tying a continuing resolution to fund the government with a measure to raise the debt limit through the end of 2022, putting lawmakers at an impasse ahead of a Thursday night deadline to avert a shutdown. This also comes alongside ongoing debates around a bipartisan $1 trillion infrastructure deal and $3.5 trillion budget reconciliation package, with key actions on each of these also set to take place later this week.
“It is really important that we separate the shutdown, which is terrible, from the debt limit, which is catastrophic,” Jason Grumet, Bipartisan Policy Center president, told Yahoo Finance on Tuesday. “There could be, I think, a very short shutdown of the government Friday night going into Saturday, Sunday. And I think that you would then see a short continuing resolution to get the government running again.”
“The government shutdown isn’t really the problem we’re grappling with,” he added. “The problem we’re grappling with really is the debt ceiling. Democrats tried to join them together. That did not make the sale for Republicans. Some Democrats have a different approach on the debt ceiling. But I am not particularly concerned about a government shutdown.”
6:15 p.m. ET Tuesday: Stock futures edge higher
Here were the main moves in markets as of Tuesday evening:
S&P 500 futures (ES=F): +7.5 points (+0.17%), to 4,351.00
Dow futures (YM=F): +76 points (+0.22%), to 34,251.00
Nasdaq futures (NQ=F): +13.5 points (+0.09%) to 14,778.25
Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter