Raindrops hang on a sign for Wall Street outside the New York Stock Exchange in Manhattan in New York City, New York, U.S., October 26, 2020. REUTERS/Mike Segar/File Photo

Jan 10 (Reuters) – Nasdaq futures fell1% on Monday as heavyweight technology stocks dropped on expectations of a high interest rate environment, while big banks extended gains after U.S. Treasury yields climbed to new two-year highs.

Megacap growth companies including Apple Inc (AAPL.O), Amazon.com Inc , Microsoft Corp (MSFT.O), Meta Platforms Inc (FB.O) and Tesla Inc (TSLA.O) fell between 1.2% and 2.8% in premarket trading.

The S&P 500 (.SPX) and the tech-heavy Nasdaq (.IXIC) indexes were on course for their fifth straight day of declines as many tech and growth stocks tumbled in the first week of 2022 after investors began to recalibrate their portfolios to account for a more hawkish Federal Reserve.

The S&P 500 banking sector (.SPXBK) gained 9.4% last week as Treasury yields rallied on rate hike expectations.

Goldman Sachs expects the Fed to raise rates four times in 2022, compared to its previous forecast of three, and begin the runoff process for its balance sheet as soon as July. read more

“Fears about the Fed is the key this morning as it was certainly last week. And you have Goldman now expecting to see four rate hikes in 2022 and that is just a very hostile environment for tech and growth stocks,” said Thomas Hayes, managing member at Great Hill Capital LLC in New York.

Traders have ramped up their rate hike expectations this year after the U.S. central bank’s minutes from the December meeting suggested an earlier-than-expected rate hike.

Markets are now expecting a greater than 70% chance of an interest rate rise to 0.25% in March and at least two more hikes by year end. FEDWATCH

Tesla led the declines with a 2.6% drop after Chief Executive Officer Elon Musk tweeted on Friday that the electric carmaker will raise the U.S. price of its advanced driver assistant software. read more

Microsoft (MSFT.O) fell 1.3% after a media report that the software company has been losing its augmented-reality talent to peers like Meta (FB.O).

The benchmark 10-year Treasury yield hit 1.80% in early trading – a level last seen in early 2020, having shot up 25 basis points last week in its biggest move since late 2019. read more

Big banks like JPMorgan Chase & Co (JPM.N), Goldman Sachs (GS.N), Bank of America Corp (BAC.N), Morgan Stanley (MS.N) and Citigroup Inc (C.N) gained between 0.3% and 0.6%.

Investors await inflation data this week for cues on consumer and producer prices, and whether they will sway the trajectory of the Fed’s interest rate hikes.

At 8:30 a.m. ET, Dow e-minis were down 89 points, or 0.25%, S&P 500 e-minis were down 26.5 points, or 0.57%, and Nasdaq 100 e-minis were down 166 points, or 1.07%.

Sportswear giant Nike fell 2.6% after HSBC downgraded the stock to “hold” along with peer Adidas (ADSGn.DE) due to persistent supply chain issues.

Reporting by Bansari Mayur Kamdar and Shreyashi Sanyal in Bengaluru; Editing by Maju Samuel

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