US stock futures fell on Tuesday as investors faced a difficult mix of surging oil prices, a 5% Treasury yield and lingering uncertainty over the durability of the artificial-intelligence trade.
Dow futures dropped about 250 points, or 0.65%, while S&P 500 and Nasdaq 100 futures slipped roughly 0.5% and 0.6%.
The cautious tone followed Monday’s losses, when the S&P 500 fell 0.48% and the Nasdaq dropped 0.56% as semiconductor shares bore the brunt of an AI-driven sell-off.
Brent crude climbed above $108 a barrel, while the 10-year Treasury yield reached its highest level since 2007.
5 things to know before Wall Street opens
1. The Fed begins a meeting with a hike largely priced in
The Federal Reserve starts its two-day meeting on Tuesday, with futures markets assigning about a 92% probability to a 25-basis-point increase on Wednesday. Such a move would be the first rate hike since July 2023.
The bigger question is what follows.
Economists at Deutsche Bank and JPMorgan see scope for additional increases before year-end, making Chair Kevin Warsh’s guidance on the future path of rates potentially more important than Wednesday’s decision itself.
2. The 10-year Treasury yield breaks above 5%
The benchmark 10-year yield climbed to around 5.03%, its highest level since 2007, extending a bond sell-off driven by inflation concerns and expectations for tighter monetary policy.
For equities, the move raises the discount rate applied to future earnings and gives investors a more attractive risk-free alternative to stocks.
Market strategist Patrick Munnelly told MarketWatch that elevated inflation is limiting central banks’ ability to offer investors monetary relief.
3. Oil above $108 adds another inflation headache
Brent crude rose more than 2% to around $108 a barrel, while WTI climbed above $103 as renewed attacks on Saudi infrastructure intensified concerns over Middle East supply.
The Saudi East-West pipeline remains offline, threatening a route that helps bypass the Strait of Hormuz.
Rising energy costs matter well beyond oil stocks because they risk keeping headline inflation elevated just as the Fed is considering renewed tightening.
4. AI stocks remain under scrutiny after Monday’s sell-off
Alphabet and Microsoft fell more than 1% in premarket trading, while Nvidia was little changed after semiconductor stocks suffered heavy losses on Monday.
The sell-off followed calls from senior technology figures for slower development of advanced AI systems on safety grounds.
But the investment implications remain uncertain.
Analysts at JPMorgan and Jefferies said that there is still no clear evidence that AI infrastructure spending itself is slowing.
That distinction is crucial after the PHLX semiconductor index dropped 5.9% on Monday.
5. Bitcoin weakness hits crypto stocks, while energy shares benefit
Bitcoin fell nearly 3% towards $76,800, dragging Coinbase and Strategy down more than 4% in premarket trading.
Dave & Buster’s sank roughly 14% after quarterly results showed continuing pressure on the entertainment chain.
Energy shares moved the other way. Halliburton, Occidental Petroleum and Marathon Petroleum gained before the bell as investors positioned for stronger earnings leverage from crude prices near multi-year highs.
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