U.S. stock futures fell and bond yields rose Wednesday, pointing to another bumpy day on Wall Street as investors gird for a spell of higher inflation, driven by roaring energy markets.
Futures for the S&P 500 dropped 1.3%. The broad stocks index rose 1.1% on Tuesday, clawing back some losses incurred in a technology-driven selloff at the start of the week.
Contracts for the tech-focused Nasdaq-100 fell 1.5% on Wednesday, suggesting tech stocks could face fresh losses at the opening bell. Futures for the Dow Jones Industrial Average lost 1.1%.
U.S. government bonds extended a recent selloff. Yields on 10-year Treasury notes—which move in the opposite direction to the price of the bonds—rose to 1.548% from 1.528% Tuesday.
A leap in energy prices has added a new element of uncertainty for investors already jittery over the prospect of a reduction in pandemic-era stimulus measures by the Federal Reserve. Higher oil-and-gas prices have the potential to fuel inflation, introduce blockages in supply chains and slow down the world economy as it recovers from shutdowns, analysts say.
That mix of forces has forced government bond yields higher. Higher yields can knock tech stocks whose future profits are worth less in today’s currency when discount rates climb. It has also raised concerns that inflation, seen as a transitory, will stick around longer than previously thought.
The New York Stock Exchange on Tuesday.
Photo: Mary Altaffer/Associated Press
“At what point do central banks have to say, hang on, two years, maybe that does need some degree of policy adjustment?” said Jane Foley, head of foreign-exchange strategy at Rabobank. She pointed to the Bank of England, which has said it could raise rates in coming months as energy price inflation surges.
Oil prices retreated somewhat Wednesday but remained near multiyear highs. Futures on Brent crude oil fell 0.5% to $82.16 a barrel and contracts for West Texas Intermediate, the main grade of U.S. crude, fell 0.5% to $78.49 a barrel. WTI prices haven’t surpassed $80 a barrel on an intraday basis since November 2014.
European natural-gas prices, meanwhile, surged again, presenting a major challenge to the region, which relies on the fuel for electricity, home heating and industrial uses. Benchmark gas futures jumped 13% to €131.11, equivalent to $151.35, a megawatt-hour. European gas prices have jumped 40% this week alone, and almost sevenfold this year as the energy-starved nations in Europe and Asia bid for limited supplies before the cold winter weather.
Forecasts of colder weather have propeled the latest leg in the rally, along with weak flows of gas from Russia and thin trading conditions, said Nick Boyes, senior analyst at Swiss energy producer and trader Axpo. Cooler temperatures are “driving demand higher because some people are turning on their heating early,” he said.
Higher energy prices rippled through European government-bond markets. The yield on 10-year U.K. gilts rose to 1.152% from 1.093% on Tuesday. The U.K. is exposed to the global gas shortfall because it has minimal amounts of the fuel in storage.
Overseas markets retreated. The Stoxx Europe 600 slid 1.9%, led lower by shares of travel, autos and technology companies. Aircraft maker Airbus and Jeep-owner Stellantis fell more than 3% and 4%, respectively. In Asia, Hong Kong’s Hang Seng fell 0.6%.
In premarket trading, shares of American Airlines Group lost more than 4% and Delta Air Lines more than 2%, weighed down by concerns about fuel costs and a slowing economic growth. Palantir Technologies jumped more than 7% premarket after saying it won a data and analytics contract with the U.S. Army.
Up ahead, investors will parse the ADP employment survey at 8:15 a.m. ET for clues about the health of the labor market.
Write to Joe Wallace at joe.wallace@wsj.com
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