Stock Futures Fall as Middle East Conflict Lingers; Big Tech Results Awaited
Investor Concerns and Tensions Rise
U.S. stock index futures started the week on a sour note as investors expressed worry that the conflict between Israel and Hamas could escalate into a larger Middle Eastern conflict. Meanwhile, they awaited quarterly results from the world’s largest technology companies and key economic data.
Overnight, Israel carried out air strikes on Gaza, prompting Prime Minister Benjamin Netanyahu to convene a meeting of top generals and his war cabinet to assess the intensifying conflict.
These rising tensions, coupled with surging bond yields on expectations of higher interest rates, caused Wall Street to decline last week. The S&P 500 fell 1.26% and the Cboe Volatility index reached its highest level since March 24.
Although the benchmark stock index is down 8% from its late July peak, it is still up 10% year-to-date.
The yield on the 10-year benchmark Treasury note continued to hover around 5%, briefly surpassing this level last week after Federal Reserve Chair Jerome Powell mentioned the possibility of further rate hikes based on the resilience of the U.S. economy and tight labor market.
Focus on Big Tech Earnings
Investors will now shift their focus to a busy week of earnings reports from tech giants Microsoft, Amazon, Alphabet, and Meta Platforms. These four companies, known as the U.S. megacap stocks, have driven the S&P 500 higher this year while the rest of the index has lagged behind.
Other companies reporting quarterly results this week include chipmaker Intel, oil major Exxon Mobil Corp, and General Motors.
According to data from LSEG, of the 86 companies in the S&P 500 that have reported earnings so far in the third quarter, 78% have exceeded analyst estimates. Overall, third-quarter earnings are expected to grow by 1% year-on-year.
Economic Data and Monetary Policy
Investors will closely monitor the release of U.S. GDP data, expecting the economy to have grown at a robust 4.2% in the third quarter. This could potentially warrant tighter monetary policy.
Money markets currently indicate a 98% chance that the Fed will keep rates unchanged in November and a 75% chance of no change in December, according to the CME’s FedWatch Tool.
Federal Reserve Chair Jerome Powell will be giving brief introductory remarks at an event on Wednesday, but it is unlikely he will speak about monetary policy due to the blackout period for the Federal Open Market Committee that began on Saturday.
The week will conclude with the release of the Personal Consumption Expenditure (PCE) Price Index, the Fed’s preferred inflation gauge, for September.
Stock Futures and Pre-Market Updates
As of 4:38 a.m. ET, Dow Jones futures were down 63 points, or 0.19%, S&P 500 futures were down 5.5 points, or 0.13%, and Nasdaq futures were down 15 points, or 0.1%.
In premarket trading, Roivant surged 16.8% after Switzerland’s Roche announced its acquisition of Telavant, a developer of a new treatment for inflammatory bowel diseases, for an initial $7.1 billion from Roivant and Pfizer.
Salesforce dipped 1.4% as Piper Sandler downgraded the stock rating to “neutral” from “overweight”.