U.S. stock futures pointed to a modestly higher opening on Tuesday, with Wall Street looking to recover after the major indices finished a volatile Monday session slightly lower.
Sentiment improved as crude oil prices retreated substantially from their earlier highs. U.S. crude futures were still up around 0.4% after having surged as much as 3% earlier amid uncertainty surrounding negotiations over the reopening of the Strait of Hormuz.
Despite the positive indication from futures, trading could remain cautious ahead of important U.S. inflation figures scheduled for later this week.
CPI and PPI reports take centre stage
The Labor Department is due to publish consumer inflation data on Wednesday, followed by producer inflation figures on Thursday.
The reports have taken on greater significance following Friday’s unexpected decline in U.S. employment, with investors assessing what the combination of labour-market and inflation data could mean for the Federal Reserve’s interest-rate outlook.
“US equities are hovering near record highs, but the next leg of the rally will depend on Wednesday’s US inflation report,” said Daniela Hathorn, Senior Market Analyst at Capital.com.
“After another strong earnings season, particularly among the technology giants, investors have become increasingly comfortable with the idea that the economy can continue expanding without forcing the Federal Reserve into further policy tightening,” she added. “Whether that optimism proves justified now hinges on the inflation data.”
Wall Street finishes Monday slightly lower
U.S. stocks struggled to establish a clear direction on Monday following strong gains during the previous week.
The Dow Jones Industrial Average declined 60.95 points, or 0.1%, to 53,975.98. The Nasdaq Composite lost 85.26 points, or 0.3%, to finish at 26,605.36, while the S&P 500 slipped 4.53 points, or 0.1%, to 7,753.11.
The subdued session came after the S&P 500 reached a record closing high on Friday, prompting investors to reassess the market’s recent advance ahead of the inflation releases.
Strait of Hormuz uncertainty keeps oil markets volatile
Developments in the Middle East remained another important influence on sentiment.
Iran and Oman are reportedly nearing an agreement concerning the Strait of Hormuz, although Tehran has indicated resistance to negotiations with the United States.
Iran has warned that the strategically important waterway will not reopen unless Washington satisfies a series of conditions, reducing expectations for a rapid normalisation of global energy flows.
Oil prices surged in response on Monday, providing a substantial boost to energy stocks. With U.S. crude futures rising nearly 5%, the Philadelphia Oil Service Index jumped 5.8%, while the NYSE Arca Oil Index advanced 5.3%.
Energy and software gain while airlines and chips retreat
The broader market’s limited movement concealed significant differences between sectors.
Software stocks performed strongly, with the Dow Jones U.S. Software Index gaining 1.9%.
Airlines moved sharply in the opposite direction as higher fuel prices weighed on the sector. The NYSE Arca Airline Index plunged 4.4%.
Semiconductor stocks also came under substantial pressure, pushing the Philadelphia Semiconductor Index down 2.9%.
With futures now pointing slightly higher, attention is shifting back towards Wednesday’s inflation report. The figures could determine whether investors remain comfortable with the interest-rate outlook that has helped U.S. equities trade near record levels.