US pre-open: Stocks set for more losses after Monday's huge selloff
Stocks on Wall Street looked set for more losses on Tuesday following a massive selloff in the previous session amid concerns that rising inflation will push the Federal Reserve to hike rates faster than expected.
At 1215 GMT, Dow Jones Industrial Average futures were down 334 points or 1.4%, while S&P 500 and Nasdaq futures were off 25 points and 54 points, respectively.
On Monday, the Dow lost 4.6% or 1,175 points to 24,345.75, having fallen nearly 1,600 points intraday, while the S&P 500 ended down 4.1% at 2,648.94 and the Nasdaq slid 3.8% or 273 points to 6,967.53.
US stocks had enjoyed record highs recently as investors welcomed President Donald Trump’s tax overhaul, but a strong non-farm payrolls report last Friday, which showed the best US wage growth in eight-and-a-half years, prompted fears that the Fed may need to hike rates more than previously anticipated.
Rabobank said: "It is glaringly obvious from the tumbles in stock markets that the market is currently re-evaluating the risk of inflation and the outlook for financing costs. If inflation were to raise its ugly head in the US, this would clearly have ramifications for Fed policy and the value of the USD. That said, there is plenty of evidence that many investors in other assets classes are holding their nerve reasonably well."
Market commentators also suggested that automatic trades could have been behind the sharp move lower seen on Monday.
With major indices now down more than 10% from their recent highs, equity markets are in correction mode.
Analysts also argued that the relative calm in the gold market suggests that this latest bout of selling isn't the type of major risk on/risk off move we were used to years ago. IG's Chris Beauchamp said: "The speed of the correction, not its size, is the real shock, particularly to a market inured to low volatility."
Gabriel Sterne, head of global macro research at Oxford Economics, said that although this market reversal is quite severe and of similar magnitude to other tantrums and episodes since mid-2013, the worst-case scenario of a sustained market rout with major global macro consequences is quite unlikely.
"All the tantrums and market episodes of recent years have petered out quite quickly, and our view is that this one will probably take a similar turn," he said.
As stocks declined, Treasury prices continued to rise, with the yield on the 10-year note trading at 2.707% versus 2.794% late on Monday.
On the corporate front, Allergan looked set to buck the trend after it announced positive late-stage results for one of its migraine drugs and released its fourth-quarter earnings.
Elsewhere, Dunkin Brands was in the red even as its fourth-quarter profit and revenue beat analysts' expectations, while Gartner was in focus as its fourth-quarter net profit beat views but sales fell a little short.
General Motors was slated to report earnings before the open, with earnings due from Walt Disney and Snap Inc after the close of markets.
On the macroeconomic calendar, trade balance figures for December are due at 1330 GMT.