By Peter Nurse
Investing.com - U.S. stocks are seen opening largely lower Friday, with the recent rally set to pause as higher bond yields prompt investors to sell the highly-leveraged tech sector.
At 7:05 AM ET (1205 GMT), the Dow Futures contract was flat, S&P 500 Futures traded 17 points, or 0.5%, lower, and Nasdaq 100 Futures dropped 200 points, or 1.6%.
President Joe Biden signed his $1.9 trillion Covid relief package into law late Thursday, adding to the ocean of liquidity that has underpinned the equity rally since March last year.
Biden also directed the states to make all adults eligible for Covid-19 vaccines by May 1, declaring that Americans should expect to be able to host neighborhood parties come the July 4 holiday.
The Dow Jones Industrial Average gained 0.6% on Thursday, while the S&P 500 rose 1.4%, both indices closing at record levels, while the tech-heavy Nasdaq Composite soared 2.5%. Wall Street is still on track to record its best week in five.
However, the bond market has started to flash warning signs about how this package will be financed, with yields starting to spike again. Thursday’s $24 billion auction of 30-year U.S. Treasuries drew solid results, but a sharp reduction in foreign demand.
The yield on the benchmark 10-Year Treasury note stood at 1.60%, just below last week’s one-year high of just over 1.62%.
This abrupt rise in bond yields has put significant pressure on high-growth tech stocks as they reduce the relative value of future profits as well as increasing borrowing costs.
On the flip side, the reopening trade is in full force, and travel and leisure stocks are set to benefit, as well as banks and payments companies that benefit from extra economic activity.
Elsewhere, Novavax (NASDAQ:NVAX) stock is set to soar after the drug maker’s Covid-19 vaccine was declared 96% effective in preventing cases in a late-stage trial, moving it a step closer to regulatory approval.
Stocks of Chinese companies Baidu (NASDAQ:BIDU), Tencent (OTC:TCEHY) and Alibaba (NYSE:BABA) are set to open lower after China's market regulator fined 12 companies, including these three, over the violation of anti-monopoly rules.
Oil prices edged lower Friday, but remained at elevated levels amid confidence about demand recovery in the second half of the year as the global economy - and the travel sector in particular - recovers.
Of interest later in the session will be the weekly Baker Hughes rig count, with high prices likely to tempt more shale producers back into the market.
U.S. crude futures traded 0.2% lower at $65.87 a barrel, while the international benchmark Brent contract fell 0.2% to $69.50, having reached a 13-month high at the start of the week.
Elsewhere, gold futures fell 1.2% to $1,701.25/oz, while EUR/USD traded 0.5% lower at 1.1925.