Wall Street futures down after interest rate review, geopolitical risks

The rise in yields put pressure on rate-sensitive mega-cap growth stocks, sending Nvidia down 0.8% and Alphabet 0.5% in premarket trading. (EPA images photo)

NEW YORK: US stock index futures fell today as investors recalibrated their expectations for Federal Reserve rate cuts this year, while also exercising caution amid heightened geopolitical tensions and ahead of key inflation data, policymaker comments and earnings reports on the third quarter.

According to the CME’s FedWatch tool, investors estimate a more than 85% chance of a 25 basis point rate cut at the November Fed meeting. Just a week ago, markets were hoping for a second, excessive cut of 50 basis points.

However, an impressive nonfarm payrolls report last Friday showed that the economy unexpectedly added the most jobs in six months, indicating a still robust labor market.

The Cboe Volatility Index, Wall Street’s fear gauge, rose to 21.17, its highest level in four weeks.

Meanwhile, U.S. Treasury yields rose, with the yield on 10-year benchmark bonds breaching the 4% mark for the first time in two months.

“U.S. Treasury and Treasury yields are consolidating near multi-week highs, driven by Friday’s excellent U.S. jobs report,” Brown Brothers Harriman analysts said.

Markets will continue to “wax and wane” with a focus on US economic performance, military tensions in the Middle East and risky dynamics, the analysts added.

The rise in yields put pressure on rate-sensitive mega-cap growth stocks, sending Nvidia down 0.8%, Alphabet 0.5% and Microsoft 0.3% in premarket trading.

Apple fell 1.2% after Jefferies assumed coverage of the stock with a ‘hold’ rating.

Among other things, Pfizer shares rose 3.3% after a report that activist investor Starboard Value has taken a stake of about $1 billion in the drug giant.

At 7 a.m., the U.S. S&P 500 E-minis were down 30.75 points, or 0.53%, the Nasdaq 100 E-minis were down 136.5 points, or 0.67%, and the Dow E-minis were down 193 points, or 0.46%.

Futures for the small-cap Russell 2000 index RTYcv1 also fell 0.68%.

As markets continue to refine their expectations for rate cuts, most market watchers remain optimistic about the underlying strength of the economy and the outlook for equities.

Goldman Sachs raised its target for the S&P 500 for the end of 2024 from 5,600 to 6,000, and also lowered the chance of a US economic recession from 20% to 15%.

Escalating geopolitical tensions in the Middle East were on investors’ radar. Hezbollah rockets struck Israel’s third-largest city Haifa early on Monday in the first direct attack on the northern city.

The benchmark S&P index closed just above 5,751 on Friday, while the Dow Jones Industrial Index hit a record high after the jobs report.

Consumer Price Index data, the week’s most-watched data event, is due Thursday.

Several Fed officials are also scheduled to speak this week, with remarks expected later on Monday from Michelle Bowman, Neel Kashkari, Raphael Bostic and Alberto Musalem.

Third-quarter earnings reports for S&P 500 companies also start this week, with major banks like JP Morgan Chase, Wells Fargo and BlackRock due on October 11.

Earnings results will be a key test of Wall Street’s rally this year – the S&P 500 is up about 20% this year and is near record highs.