U.S. stock index futures pointed to a lower opening on Tuesday, with equities set to extend losses from the previous two sessions as investors assessed higher crude oil prices, rising Treasury yields and developments in the Middle East.
U.S. crude oil futures climbed 2.5% after gaining nearly 3% in the previous session. The latest increase followed renewed military exchanges between the U.S. and Iran and contributed to market attention on the inflation outlook and the possibility of another Federal Reserve interest-rate increase.
Treasury yields also continued to rise, with the yield on the benchmark 10-year note reaching its highest level since January 2025.
“Long-term US yields are still historically high having risen last week despite Treasury’s expanded buyback programme, suggesting the pressure extends beyond expectations for Fed policy,” said Daniela Hathorn, Senior Market Analyst at Capital.com.
She added, “Heavy government borrowing, elevated term premium and growing competition for capital continue to underpin yields, creating a less comfortable environment for highly valued equities.”
Fed rate expectations increase
According to CME Group’s FedWatch Tool, market-implied expectations for a 25-basis-point Federal Reserve rate increase have risen to 63.9% following comments from Fed Chair Kevin Warsh last Friday.
Higher crude oil prices have increased investor attention on inflation ahead of the Federal Reserve’s next policy meeting. However, market-implied probabilities can change and do not indicate what decision the central bank will ultimately make.
Investors are also awaiting several U.S. economic reports this week, including the monthly employment report scheduled for Friday.
Wall Street closed lower on Monday
U.S. stocks finished mostly lower on Monday, extending the decline recorded during Friday’s session, although the major indices recovered some ground later in the trading day.
The Dow Jones Industrial Average fell 374.09 points, or 0.7%, to 53,185.90. The S&P 500 declined 25.62 points, or 0.3%, to 7,686.14, while the Nasdaq Composite slipped 31.53 points, or 0.1%, to 26,370.89.
The declines coincided with renewed tensions in the Middle East after the U.S. and Iran exchanged strikes over the weekend for the first time in more than a month.
The U.S. attacked two Iranian rocket launchers on Larak Island, while Iran subsequently launched an attack against two U.S. bases in Jordan.
Airlines and rate-sensitive sectors decline
Airline stocks recorded some of Monday’s largest sector declines as crude oil prices increased. The NYSE Arca Airline Index fell 3.2% to its lowest closing level in more than three months.
Interest-rate-sensitive sectors also moved lower. The Philadelphia Housing Sector Index declined 1.9%, while the Dow Jones Utility Average fell 1.4%.
Gold and retail stocks also recorded declines, while energy shares advanced alongside crude oil prices.
Tuesday’s pre-market trading remained focused on oil prices, Treasury yields and developments in the Middle East, alongside upcoming U.S. economic data and expectations for the Federal Reserve’s next policy decision.