U.S. stock index futures are trading mixed on Tuesday, with investors monitoring ongoing geopolitical tensions in the Middle East, rising bond yields, and the active quarterly earnings season.
Wall Street’s major indexes posted significant losses on Monday, extending last week’s declines, as a series of bearish signals prompted investors to take profits following the strong rebound seen in the first quarter.
The Dow Jones Industrial Average lost nearly 250 points, down nearly 0.7%, erasing most of its gains for this year. The S&P 500 fell 1.2%, and the NASDAQ Composite dropped nearly 1.8%.
Rising bond yields have placed significant pressure on the market following better-than-expected U.S. retail sales data, which showed that consumer spending remains strong. This is expected to underpin inflation in the coming months and possibly prevent the Federal Reserve (Fed) from cutting interest rates anytime soon.
Instability in the Middle East gains momentum
Instability in the Middle East has also taken its toll on confidence as Israel prepares to respond to the large-scale Iranian drone and missile strike over the weekend. Although the attack did little damage, it put the possibility of a full-scale war in the region on the table, which kept traders inclined to invest primarily in gold (XAU) and the U.S. dollar (USD).
Additionally, a large volume of long positions in US stocks, which are currently suffering losses, could increase market pressure.
Johnson & Johnson and Morgan Stanley’s results in the spotlight
Despite some reservations, with Goldman Sachs leading the way, the first-quarter earnings season got off to a weak start, with disappointing figures from several major banks. The persistent fragility of the major technology companies also played a role, amid growing concerns that their earnings are unlikely to justify the decline in valuations over the quarter.
Bank of America (BAC) and Morgan Stanley (MS) will be in the spotlight following poor quarterly results from most banks.
On the other hand, Johnson & Johnson (JNJ) reported first-quarter profits above forecasts, driven by strong sales of its cancer-fighting drugs, particularly Darzalex, its best-selling treatment for blood cancer.
UnitedHealth Group (UNH) announced on Tuesday that it estimates the February cyberattack on its Change Healthcare (CHNG) unit may impact full-year earnings by up to $1.35 per share as it works to restore services and mitigate the attack’s damage.
Powell’s speech is awaited for more clues on rates
Several members of the Federal Reserve are expected to speak today, with the main focus on Chairman Jerome Powell for more clues on interest rates. The Fed Chairman will hold a conversation with his counterpart, Bank of Canada Governor Tiff Macklem.
Chairman Powell’s speech comes amid growing signs that U.S. inflation is likely to remain stable over the next few months, potentially reinforcing the Federal Reserve’s inclination to maintain higher interest rates for an extended period. Markets for now have largely ruled out bets on a rate cut by June.
The economic calendar includes the release of March industrial production data, as well as the latest figures on housing starts and building permits, providing a clearer picture of the housing sector’s health.
Oil prices stable on Chinese growth data
Oil prices stabilized on Tuesday as traders digested growth data from China, along with an uncertain scenario in the Middle East.
China’s economy grew more than expected in the first quarter, bolstering the crude oil market. The recovery of the world’s largest oil importer has been a major bullish factor influencing market projections this year.
Oil prices reached their highest levels since October last week but dropped on Monday. The decrease followed Iran’s weekend attack on Israel, which proved less damaging than anticipated, thereby easing concerns about a rapid escalation of the conflict that could affect supplies from the oil-producing region.
