Stock futures tick higher as investors try to look past economic worries, deficit fears: Live updates

Stock futures remained relatively flat Thursday night as investors assessed the impact of rising U.S. Treasury yields, driven by concerns over the cost and deficit implications of the newly passed tax bill. The 30-year Treasury yield reached its highest level since October 2023, while the 10-year breached 4.6%, exacerbating existing worries stemming from Moody's recent downgrade of the U.S. credit rating due to the ballooning deficit. Major averages are trending towards weekly losses, with the S&P 500 down nearly 2% as investors await building permits and new home sales data amid the upcoming Memorial Day holiday.

Analysis

Stock futures exhibited minimal change overnight, with Dow futures down 0.1%, Nasdaq 100 futures up 0.05%, and S&P 500 futures ticking up 0.08%, as investors grappled with the implications of rising U.S. Treasury yields. These yield increases, exemplified by the 30-year Treasury bond reaching 5.161% (its highest since October 2023) and the 10-year note breaching 4.6%, are primarily attributed to concerns over the fiscal impact of the recently passed House tax bill, including its potential to exacerbate the national debt and deficit. This situation is compounded by Moody's recent downgrade of the U.S. sovereign credit rating to Aa1 from Aaa, citing the ballooning deficit and debt rollover costs. Thierry Wizman of Macquarie highlighted that large deficits imply greater bond supply and potential future inflation, rendering nominal fixed-income instruments less attractive as long-term investments. Reflecting these concerns and a moderately negative market sentiment, major indices are poised for weekly losses, with the S&P 500 down nearly 2%, the Dow by approximately 1.9%, and the Nasdaq by 1.5% through Thursday's close. Investors now await Friday's building permits and new home sales data ahead of the Memorial Day holiday-shortened trading week.

Key Decisions for Investors

• Investors should reassess allocations to long-duration fixed-income assets, considering the heightened risk from increasing Treasury yields and potential inflationary pressures stemming from fiscal deficits.
• Closely monitor forthcoming housing market data and ongoing Treasury yield fluctuations, as these will be key indicators of economic resilience and market reaction to fiscal policy developments.
• Maintain a cautious stance towards broad equity market exposure in the near term, reflecting the prevailing negative sentiment, recent market weakness, and fiscal uncertainties that could be amplified by holiday-thinned trading.