Dow futures fall 150 points even as earnings results continue to top expectations

Dow Jones Industrial Average futures fell as sliding bond yields raised concern about the pace of global economic growth and took focus away from continued better-than-expected earnings results Thursday morning.

Dow futures shed about 150 points, or 0.43%. S&P 500 futures lost around 0.3%. Nasdaq 100 futures traded near the flatline.

The slight pullback came with all major stock benchmarks about 1% or less from record highs. The S&P 500 is already up 16% this year in anticipation of a big profit comeback.

“The market did as well as it did in the past year because it was in anticipation of the improvement in earnings that we’re seeing right now,” Liz Ann Sonders, chief investment strategist at Charles Schwab, said. “A lot of news has been priced in.”

Shares of Morgan Stanley dipped in early morning trading even after the company’s second-quarter earnings report Thursday morning topped analysts’ expectations with strong equities trading and investment banking results. Morgan Stanley were up 35% this year into the results and the stock may be reacting more to the outlook for yields than its actual results.

Initial jobless claims for the week ending July 10 totaled 360,000, a new pandemic-era low, as expected by economists.

Investors also await a Congressional testimony from Federal Reserve Chair Jerome Powell set for 9:30 a.m. ET.

Futures retreated as investors focused on a rollover in bond yields, raising questions about the global economic recovery as variants of Covid-19 spread. The 10-year Treasury yield shed 3 basis points to 1.326%. It ended June at 1.45% and was above 1.70% back in March. China also reported GDP overnight that was less than expected.

The move lower in yields dampened enthusiasm for the cyclical trade in the premarket with shares of Caterpillar, General Electric and Boeing lower. Cyclical stocks are those closely linked to a recovering economy.

Bank shares, including Wells Fargo and Bank of America, were lower in premarket, despite posting better-than-expected results earlier in the week, as the falling yields pinch their profitability.

Delta shares bucked the trend, however, gaining in premarket trading after an upgrade from Raymond James.

Netflix shares also rose premarket trading, gaining 2% after it hired a veteran video-game executive as it pushes deeper into gaming. Other large tech shares were higher in premarket trading, continuing a trend this week. Apple and Alphabet gained in premarket trading.

On Wednesday, the Dow rose 44 points, helped by a 2.4% gain in Apple’s stock. The S&P 500 climbed 0.12% after hitting an intraday record earlier in the session. The Nasdaq Composite was the relative underperformer, dipping 0.2%. However, the Nasdaq 100 closed at an all-time high.

The small-cap benchmark Russell 2000 lost 1.7% on Thursday, bringing its week-to-date losses to more than 3.4%.

Fed Chair Powell — in testimony to the House Committee on Financial Services — quelled investors’ fears about a rollback of the central bank’s easy policies anytime soon, even in the face of inflation. The producer prices from June showed higher than expected inflation on Thursday.

“Fed chair Powell helped calm fears by again suggesting these bad inflation reports were merely transitory,” said Jim Paulsen, chief investment strategist at the Leuthold Group, noting the drop in bond yields following the hot inflation report. “Evidently, bond investors are buying the Fed’s inflation narrative.”