Written by Lisa Pauline Matakkal and Pranav Kashyap
(Reuters) – Investors recalibrate expectations for Federal Reserve interest rate cuts this year, but remain cautious ahead of rising geopolitical tensions, key inflation data, comments from policymakers and third-quarter results. As a result, US stock index futures fell on Monday.
According to CME’s FedWatch tool, investors are pricing in a more than 85% chance that the FOMC will cut rates by 25 basis points in November. Just a week ago, the market was pinning its hopes on a second major 50 basis point cut.
However, a strong September non-farm payrolls report released last Friday showed the economy unexpectedly added the most jobs in six months, pointing to a still robust job market. are.
The CBOE Volatility Index, Wall Street’s fear gauge, rose to 21.17, its highest level in four weeks.
Meanwhile, U.S. Treasury yields rose, with the benchmark 10-year bond yield exceeding 4% for the first time in two months.
“Friday’s outstanding US September jobs report has caused the US dollar and US Treasury yields to consolidate near multi-week highs,” said analysts at Brown Brothers Harriman.
Analysts added that the market will continue to “ebb and flow,” highlighting the strength of the U.S. economy, military tensions in the Middle East and risk-on trends.
Rising yields weighed on interest-sensitive large growth stocks, with Nvidia down 0.8%, Alphabet 0.5% and Microsoft 0.3% in pre-market trading.
Apple fell 1.2% after Jefferies gave the stock a “hold” coverage rating.
Among other moves, Pfizer shares rose 3.3% after reports that activist investor Starboard Value had acquired about $1 billion in stock in the pharmaceutical giant.
As of 7 a.m. ET, the U.S. S&P 500 E-mini was down 30.75 points, or 0.53%, the Nasdaq 100 E-mini was down 136.5 points, or 0.67%, and the Dow E-mini was down 193 points, or 0.46%.
Futures for the small-cap Russell 2000 index also fell 0.68%.
While markets continue to tweak expectations for rate cuts, most market watchers remain optimistic about the underlying strength of the economy and the outlook for stock prices.
Goldman Sachs raised its target for the S&P 500 index by the end of 2024 from 5,600 to 6,000, and also lowered the probability of a U.S. recession from 20% to 15%.
Rising geopolitical tensions in the Middle East had captured the attention of investors. Hezbollah rockets struck Israel’s third-largest city, Haifa, in the early hours of Monday, marking the first direct attack on a northern city.
The benchmark S&P index ended Friday at just above 5,751, and the Dow Jones Industrial Average hit a closing high after the jobs report.
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This week’s most closely watched consumer price index data is scheduled to be released on Thursday.
Several Fed officials are also scheduled to speak this week, with comments expected later Monday from Michelle Bowman, Neel Kashkari, Rafael Bostic and Alberto Moussalem.
Third-quarter earnings for S&P 500 companies begin this week, and major banks such as JPMorgan Chase, Wells Fargo and BlackRock are scheduled to report on October 11th.
Earnings will be a key test of Wall Street’s stock rally this year. The S&P 500 is up about 20% since the beginning of the year and is near all-time highs.
(Reporting by Lisa Matakkal and Pranav Kashyap in Bengaluru; Editing by Shinjini Ganguly)
