Investors are anticipating a cautious start to the week as U.S. stock futures point to a slow recovery following a challenging week for equities. The key highlight is the 10-year Treasury yield, which has reached the psychologically significant level of 5%.
Earnings Week for Big Tech Names
This week, investors will be eagerly awaiting earnings reports from major tech companies.
- S&P 500 futures (ES00) fell by 12.25 points or 0.3%, bringing it to 4,236.75
- Dow Jones Industrial Average futures (YM00) dropped 115 points, or 0.3%, settling at 33,143
- Nasdaq-100 futures (NQ00) declined by 63 basis points, or 0.4%, to reach 14,598
Recap of Last Week's Performance
On Friday, the Dow Jones Industrial Average (DJIA) experienced a decline of 286.89 points, or 0.9%, closing at 33,127.28. Similarly, the S&P 500 (SPX) shed 53.84 points, or 1.3%, finishing at 4,224.16. Additionally, the Nasdaq Composite (COMP) dropped 202.37 points, or 1.5%, ending at 12,983.81.
Driving Factors Behind the Market
The 10-year Treasury yield (BX:TMUBMUSD10Y) surged by 9 basis points on Monday, hitting the critical threshold of 5%. This rise follows last week's substantial weekly increase since April and can be attributed to tensions in the Middle East, which prompted some investors to seek safer investments.
Last week marked significant losses for all three major benchmarks since the week ending on September 22. The Nasdaq slumped by 3.2%, and the S&P 500 dropped by 2.4%, both impacted by the climb in bond yields and concerns over the expanding Israel-Hamas conflict.
Recent developments show progress in the situation, with two Israeli hostages released over the weekend and initial aid reaching Gaza. This has led to a delay in Israel's potential ground invasion. Oil prices (CL.1, BRN00) remained steady with minor fluctuations.
Read: Stock-market investors face reality of 5% Treasury yields. Here’s what’s next.
Rising Yields and Interest Rate Hike Concerns
Rising yields have sparked concerns of an imminent interest rate hike, following Chairman Jerome Powell's recent comments. The data calendar for Monday is empty, but the week ahead will bring important updates on the housing market, economic growth, and the Federal Reserve's preferred inflation gauge, the Personal Consumption Expenditures Price Index, which is due on Friday.
Key Earnings Reports
The upcoming week will also be marked by a crucial batch of earnings reports that could significantly impact the remaining third-quarter earnings season. Companies such as Microsoft Corp., Google parent Alphabet Inc., Meta Platforms Inc., and Amazon.com Inc. are scheduled to release their financial results. The market is closely watching these reports as they may determine the direction of investor sentiment. However, mixed bank earnings have somewhat dampened market optimism.
Read: Big-tech results will decide ‘where we go from here’ amid investor caution. They would fall if it weren’t for this one company.
Technical Factors Causing Investor Anxiety
In addition to the above factors, investors are concerned about various technical aspects that could affect the market. The S&P 500 recently closed below the 200-day moving average, which is considered a crucial line by many Wall Street chartists. Its breach is seen as an indication of possible longer-term downtrends rather than uptrends.
"The index is now just 1% away from falling below the bull boundary around 4,190," warned Michael Kramer, founder of Mott Capital Management, in a note to clients. He further added that the index could potentially drop to 4,183 in the near future.
