Stock futures opened flat to slightly higher Tuesday night after a tech-led selloff during the regular trading day. Concerns about rising government bond yields and sparring among Washington lawmakers about the debt ceiling and government funding weighed heavily on equities.
Contracts on the Nasdaq rose. The index ended Tuesday’s regular session down 2.8%, posting its biggest drop since March. The S&P 500 and Dow also fell sharply.
The decline in technology stocks came as government bond yields quickly rose to their multi-month high, with the rapid rise in borrowing costs weighing on valuations for growth and technology stocks. The return on the 10-year benchmark rose to a whopping 1.56%, or the highest level since June. 10-year yields have also risen significantly in a relatively short period of time, rising more than 16 basis points from last Friday’s low to Tuesday’s high.
Amid the moves, Amazon (AMZN) shares fell 2.6% on Tuesday afternoon for a back-to-back session of declines, and other mega-cap technology stocks fell as well.
“A lot of big tech is too expensive,” said Teddy Parrish, CEO and Chief Investment Officer of Parrish Capital. Yahoo Finance on Tuesday. “Those valuations are going to have to get a little lower in one or two ways: they’re either being sold, or profits keep going up and the stocks are trading sideways. You can have a little bit of both, but to look at some of these bigger tech companies that not grow nearly as fast as their P/E [price-to-earnings] multiples, I think a lot of them are ahead of themselves.”
Some strategists suggested that the latest move lower on Tuesday might not lead to a deeper decline or formal correction in the very short term. Cyclical sectors, including energy and manufacturing and services, outperformed on Tuesday, buoyed by rising commodity prices, as higher inflation expectations so far this week pushed prices of everything from crude oil to cotton.
“I don’t think this is necessarily the start of a correction, but we have certainly seen rotational corrections throughout the year,” said Art Hogan, chief market strategist for National Securities Corporation, told Yahoo Finance about Tuesday’s market movements. “This feels a lot more like a realignment. So naturally we’re going to get some strange machinations in the markets towards the end of a quarter and that’s knocking on the door tomorrow.”
“We have enough concerns in general about the future, whether it’s inflation or how tacky that will be, the unwinding of the Fed [and] what that could mean for earnings… and certainly what’s going on in Washington and what they can and cannot achieve this week,” he added. “I think you put all that together with the return on the 10-year-old who has gone up quite a bit in a short space of time, and I really think it’s about the pace, not the ultimate level.”
In Washington, lawmakers are rushing to pass legislation to fund the government Thursday after the end of the fiscal year. Republican lawmakers have struggled to tie a sustained resolution to fund the government with a measure to raise the debt limit through the end of 2022, putting lawmakers at a standstill before a Thursday night deadline to avoid a shutdown. This also comes along with ongoing debates over a $1 trillion bipartisan infrastructure deal and a $3.5 trillion budget realignment package, with key actions for each of these also later this week.
“It’s really important that we separate the closing, which is terrible, from the debt cap, which is catastrophic,” Jason Grumet, president of the Bipartisan Policy Center, told Yahoo Finance on Tuesday. “There could, I think, be a very brief government shutdown that turns Friday night into Saturday, Sunday. And I think then you would see a short sustained resolution to get the government back to work.”
“Government shutdown is not really the problem we are grappling with,” he added. “The problem we’re struggling with is really the debt ceiling. Democrats were trying to put them together. That didn’t make the sale for the Republicans. Some Democrats have a different approach to the debt ceiling. But I’m not really worried about a government shutdown. ”
6:15 PM ET Tuesday: Stock futures edge higher
These were the main moves in the markets as of Tuesday evening:
S&P 500 futures (ES = F): +7.5 points (+0.17%), up to 4,351.00
Dow futures (YM=F): +76 points (+0.22%), up 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