US stock futures climb to near record highs as sky-high inflation fails to rattle investors

A trader blows out a chewing gum bubble while working on the floor of the New York Stock Exchange
Stocks are near record highs despite inflation surging. Yana Paskova/Getty Images
  • US stock futures rose to near record highs Monday, after a minor wobble last week.
  • Soaring US inflation in October appears to be failing to persuade investors to change course.
  • Equities have stayed buoyant in part because the bond market is so unattractive right now.

US futures rose to near record highs on Monday, as investors appeared to remain calm in the face of the highest US inflation reading in 31 years.

S&P 500 futures climbed 0.13% while Dow Jones futures were up 0.19% and Nasdaq 100 futures moved up 0.17%. US stocks fell very slightly last week to break a five-week winning streak despite finishing strongly Friday.

Bond yields slipped back Monday after rising sharply the previous week, when the release of inflation data raised expectations that the Federal Reserve would have to hike interest rates sooner than expected.

Oil prices also slid as investors weighed the possibility that US President Joe Biden may authorize the release of strategic reserves.

US stocks have remained remarkably buoyant despite inflation rising sharply. Data on Wednesday showed US CPI inflation shot up to 6.2% year-on-year in October, its highest level since 1990.

The reopening of economies around the world has caused a jump in global energy prices and supply chains have struggled to keep up with a surge in demand.

Investors traditionally hate high inflation, given that it erodes the real value of their assets. Yet stocks have continued to trade at around record highs for a few reasons.

One is that US companies had a strong third-quarter earnings season, with most beating analysts’ expectations. Another is that the world’s biggest central banks have been keener to keep up support for economies than expected.

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But a major reason is that the bond market is really unattractive right now, with “real yields” – the returns investors can expect on bonds when inflation is taken into account – at record lows. That’s fueled the so-called TINA trade, with investors buying stocks because “there is no alternative” if they want to have a chance of beating inflation.

That’s not to say there aren’t risks. Bank of America equity strategist Savita Subramanian said in a recent note that sentiment is “close to euphoric,” which is worrying, and that companies will struggle to continue beating earnings expectations.

Asian stocks were relatively subdued overnight, with Tokyo’s Nikkei 225 up 0.56% but China’s CSI 300 down 0.12%. Europe’s continent-wide Stoxx 600 was up 0.13% in morning trading on Monday.

The yield on the key 10-year US treasury note dropped 3.5 basis points to 1.549% on Monday, with short-term yields also dipping. Analysts have said they expect volatility in yields as investors try to work out what central banks are planning.

Oil prices dropped after Senate Majority Leader Chuck Schumer urged Biden to release crude reserves from the US’s strategic supplies to ease price pressures for consumers. WTI crude was down 0.58% to $US79.23 ($AU108) a barrel, while Brent crude was 0.61% lower at $US81.67 ($AU111) a barrel.

Meanwhile, bitcoin picked up after spending a few days at around the $US65,000 ($AU88,646) mark, having touched a record high above $US68,500 ($AU93,419) last week. It was up 2.3% to $US65,928 ($AU89,911) on the Bitstamp exchange.