U.S. Stock Futures Decline as Treasury Yields Rise

U.S. stock futures experienced a decline early Tuesday amid the rise in Treasury yields and anticipation of the resumption of the corporate earnings season.

How are stock-index futures trading?

• S&P 500 futures (ES00) fell 23 points, or 0.5%, to 4793.
• Dow Jones Industrial Average futures (YM00) lost 144 points, or 0.4%, to 37648.
• Nasdaq-100 futures (NQ00) dropped 115 points, or 0.7%, to 16854.

On Friday, the Dow Jones Industrial Average (DJIA) fell 118 points, or 0.31%, to 37593, while the S&P 500 (SPX) increased 4 points, or 0.08%, to 4784, and the Nasdaq Composite (COMP) gained 3 points, or 0.02%, to 14973.

U.S. investors returned from the extended weekend, following the Martin Luther King, Jr. holiday, with a cautious mood. Equity index futures were softer as traders monitored benchmark borrowing costs climbing back towards 4%.

U.S. Treasurys were catching up to Monday's increase in German bund yields after European Central Bank governing council member Robert Holzmann expressed concerns about lingering inflation potentially preventing the ECB from cutting interest rates this year.

Despite being known as a monetary hawk, Holzmann's resistance against the market's expectations for swift rate cuts in 2024 aligns with recent efforts by Federal Reserve officials to temper expectations of how quickly the U.S. central bank may ease policy this year.

"I sense that the first quarter of this year will be marked by the realization that it's too early for the central banks to cut interest rates unless something really bad – like another bank crisis, or a real estate crisis, or another debt crisis hits the fan," said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

Fed Governor Christopher Waller is scheduled to speak on the economic outlook and monetary policy at 11 a.m.

Inflation Concerns Rise Amidst Heightened Tensions in the Middle East

The recent escalation of tension in the Middle East has raised concerns about the potential impact on shipping and subsequent inflationary pressures. Yemen's Houthi rebels, despite facing recent airstrikes, have maintained their intent to target ships in and around the Red Sea. This uncertain situation has contributed to a sense of instability in the risk landscape.

In addition to these geopolitical concerns, investors will also be closely monitoring the resumption of the fourth-quarter earnings season in 2023. Notable companies reporting their earnings on Tuesday include Goldman Sachs, Morgan Stanley, PNC Financial Services, Interactive Brokers, and Pinnacle Financial Partners.

As we enter the Q4 earnings season, expectations for corporate profits remain subdued, while valuations remain relatively high. This delicate balance is predicated on anticipated rate cuts by the Federal Reserve and lower long-term interest rates. Nicholas Colas, co-founder of DataTrek Research, highlighted that a wide range of expected results by sector should keep overall market volatility at bay. While this setup may not lead to a significant market rally in the coming weeks, it is expected to sustain gradual uptrends in stock prices.

Additionally, on Tuesday, the release of the Empire State manufacturing report for January will provide further insights into the current state of the U.S. economy. The report is slated to be published at 8:30 a.m. Eastern Time.

Stay tuned for further updates as these key events continue to unfold.