S&P 500 enters bear market, 10-year yield hits 11-year high

U.S. stock futures moved slightly higher Tuesday morning as the major averages steadied following a plunge that sent the S&P 500 into its first bear market since the height of the pandemic.

Contracts on the S&P 500 rose by about 0.2% during early trade, paring some of Monday’s losses after the index dropped to its lowest level since Jan. 2021. The S&P 500 entered its first bear market since March 2020 on Monday, as its closing price put it more than 20% below its recent record closing high from Jan. Contracts on the Dow and Nasdaq also advanced during pre-market trading.

The benchmark yield on the 10-year Treasury note pulled back by about 7 basis points from Monday’s 11- year high to hover around 3.3%. The monetary policy-sensitive two-year yield also eased after spiking to its highest level since 2007. Oil prices rose, and U.S. West Texas intermediate crude oil futures broke back above $122 per barrel. Bitcoin (BTC-USD) remained under pressure as prices held just over $22,000.

Volatility resurged across markets at the start of the week as investors raced to price in a greater likelihood of a larger interest rate hike from the Federal Reserve as it races to address inflation. Market participants expect the Federal Open Market Committee (FOMC) will raise interest rates by the 75 basis points this week, with CME Group data showing Tuesday morning that traders were pricing in a more than 90% probability of such an outcome. The FOMC begins its two-day policy-setting meeting on Tuesday, with a decision and press conference from Federal Reserve Chair Jerome Powell set for Wednesday.

Expectations for a much larger-than-typical rate hike soared after the Wall Street Journal reported Monday that a 75 basis point hike was on the table among Fed officials. And talk and market pricing of such a hike had already been building after Friday’s much hotter-than-expected May CPI print, and after separate surveys in the days since showed consumers’ near-term inflation expectations were increasing to levels at or near all-time recorded highs.

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“The Fed’s previous plan to hike by 50bp [basis points] at the meetings in June and July and then revert to 25bp increases in the fall was always dependent on inflation showing signs of cooling,” Paul Ashworth, chief North America economist at Capital Economics, wrote in a note Tuesday. “Instead, the monthly gains in core CPI accelerated back to 0.6% in both April and May, suggesting that price pressures are broadening.”

And other recent reports further suggested businesses’ concerns over inflation remained elevated. The latest NFIB Small Business Optimism survey Tuesday showed inflation remained the top problem reported among small business owners. And the share of business owners raising their own selling prices rose to match a record high in the 48-year-old survey.

On the move

Gainers

• Oracle (ORCL) shares jumped more than 11% in early trade after the software company topped fiscal fourth quarter earnings and sales estimates in results delivered Monday afternoon. Cloud licensing revenue drove the beat as sales in that unit jumped 18%.

• Twitter’s (TWTR) staff is set to hear from Elon Musk this week, with the billionaire set to make his first appearance at a Twitter all-hands meeting since first announcing his $44 billion plan to buy the social media company in April, Insider reported Tuesday. Shares rose during the pre-market session.

• Kaival Brands (KAVL) shares soared in early trading after the vaping products distributor announced it reached a deal with Phillip Morris to develop and distribute electronic nicotine delivery system products outside the U.S.

Decliners

• MicroStrategy (MSTR), Coinbase (COIN), Marathon Digital Holdings (MARA) and other crypto-linked stocks declined for another session Tuesday as major cryptocurrency prices dipped further.

• Netflix (NFLX) shares were on track for a fourth day of losses after the firm Benchmark cuts its rating on the streaming company to sell from hold, Bloomberg reported Tuesday morning.

• Day One Biopharmaceuticals (DAWN) shares slid after the company said it began a public offering of $125 million shares of its common stock.

This post will be updated.

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Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter.

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