Stock futures opened slightly higher Monday evening to extend earlier gains, with equities recovering from concerns over the path forward for monetary policy last week.
Contracts on the S&P 500 edged higher. Dow futures also advanced, after the 30-stock index jumped by the most since March earlier during the day.
Monday's session saw traders pile back into some of the cyclical areas of the stock market that came under the most pressure last week, when the Federal Reserve's increased inflation outlook raised concerns that higher prices would ultimately weigh on the economic recovery. However, according to some traders, now that the Fed has signaled it would move to stem fast-rising inflation, some of the longer-term allure of the cyclical trade may be lifted.
"I think the question is going to be here is, we were priced very dovishly going into the Fed. We appear to now be priced quite hawkishly. Clearly, the right outcome is somewhere in the middle," Stuart Kaiser, UBS head of equity derivatives research, told Yahoo Finance. "So will energy benefit from a rebalancing of those expectations? Potentially. I think right now though, what we're seeing is people are readjusting their expectations, a little bit less excited about those, quote, unquote, 'reflation' sectors and maybe focused a little more on tech at the moment."
Others offered a similar view.
"One of the things we've been watching very closely is which way inflationary pressure would tip some of the growth stocks," Ann Berry, Wheelhouse chief investment officer, told Yahoo Finance on Monday. "What we've seen today, which is the upward movement again on the Nasdaq, the upward movement again on some of the key technology stocks … is very much in keeping with what we would have expected – which is, as folks look where to put their capital in a rising inflation environment, this return to growth feels natural."
"We're really looking now as people come out with announcements on what the second half of the year looks like, we're looking at what new business models are likely to persist going into this post-COVID environment," she added.
With second-quarter earnings season ramping up over the next couple of weeks, investors are also gearing up for a potentially repeat performance of strong corporate profit results, with earnings turbo-charged by vaccinated, savings-laden consumers eager to go out and spend. So far, analysts are looking for S&P 500 earnings to grow by 61.9% year-on-year in aggregate, according to FactSet data – an estimate UBS's Kaiser said may still be "need to be revised higher."
"I continue to believe that earnings are going to outperform. Expectations are getting better and better managed. But if you look at the blowout first quarter we had, I think there's enough momentum to continue that, which are going to make stocks an interesting investment throughout the year," Mitch Roschelle, Macro Trends Advisors LLC Founding Partner, told Yahoo Finance. "There likely will be a correction somewhere during the year, because there always is, but right now going into earnings season, I see tailwinds and not headwinds."
6:12 p.m. ET Monday: Stock futures add to gains
Here's where markets were trading Monday evening:
S&P 500 futures (ES=F): 4,218.75, +5 points (+0.12%)
Dow futures (YM=F): 33,802.00, +41 points (+0.12%)
Nasdaq futures (NQ=F): 14,140.5, +10.5 points (+0.07%)
NEW YORK , NY – JUNE 02: Exterior view of the New York Stock Exchange and Wall St. as new company Organon start trading next thursday in New York on June 02 2021. Organon look to expand to provide treatments for other conditions unique to women, about 80% of the new company’s revenues will come from outside the U.S (Photo by Kena Betancur/VIEWpress)
Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck
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