By Johann M Cherian and Pranav Kashyap
(Reuters) – U.S. stock indexes were poised for a lower open on Monday as sparse trading volume and a hint of rising government bond yields cast a cloud over stocks’ traditionally strong late-year rally.
At 8:33 a.m. ET, the Dow E-minis were down 363 points, or 0.84%, the E-minis were down 61.75 points, or 1.02%, and the E-minis were down 248.75 points, or 1.15%.
Stocks tend to rise well in the last five trading days of December and the first two days of January, a phenomenon called the Santa Clause rally. The S&P 500 has gained an average of 1.3% since 1969, according to the Stock Trader’s Almanac.
The benchmark index posted marginal gains last week, with analysts pointing to strong growth at the start of the year leading to a jump in value. The index has traded in a bull market for more than two years and is poised to end its second year in a row with gains of more than 20%.
Much of this year’s rally was fueled by optimism surrounding interest rate cuts, the integration of artificial intelligence that is boosting corporate profitability and expectations that President-elect Donald Trump’s policies could boost economic growth.
However, some analysts expect Trump’s policies to be inflationary, with the yield on the benchmark 10-year bond trading near its highest level since May 2024. It fell to 4.57% on the day.
“If yields continue to hold at these levels … it will be a strong drag on equity prices, as investors choose the relative safety of an almost guaranteed 5% return on assets in US Treasuries, compared to the uncertainty of stocks, many of which trading at or near all-time highs,” said David Morrison, senior market analyst at Trade Nation.
A rise in Treasury yields since early December has weighed on the S&P 500 and Dow, setting the indexes on track for their worst month since April.
After the Federal Reserve took a cautious tone at its recent meeting, markets have softened their expectations for a rate cut in 2025. They now expect the first cut in May of next year, according to CME Group’s (NASDAQ: ) FedWatch tool.
Markets also followed developments around the country’s debt ceiling. Treasury Secretary Janet Yellen said late Friday that the Treasury Department may have to take “extraordinary measures” as early as Jan. 14 to prevent the United States from defaulting on its debt.
Later in the week, investors will scrutinize the ISM manufacturing activity survey for December and the weekly jobless claims report, ahead of next week’s key jobs report.
Growth stocks weakened in premarket trading. Tesla (NASDAQ: ) fell 2.4%, Meta (NASDAQ: ) fell 1.2%, while chipmaker Broadcom (NASDAQ: ) lost 2.4% and Nvidia (NASDAQ: ) 1.6 %.
South Korea ordered an emergency safety inspection of its airline’s entire operating system after the country’s worst air disaster over the weekend involving a Boeing (NYSE: ) plane. Boeing shares fell 3.6 percent.
Trading is expected to be affected by light volumes ahead of the New Year holiday on Wednesday and is likely to remain muted until January 6.
