U.S. equity futures were broadly steady on Monday evening as market participants continued to price in the twin threats of additional Federal Reserve tightening and a renewed bout of U.S.-Iran hostilities.
By 19:50 ET (23:50 GMT), S&P 500 Futures traded at 7,702.75 points, Nasdaq 100 Futures were unchanged at 29,505.0 points, and Dow Jones Futures inched higher to 53,287.0 points.
The calm in the futures market followed a negative regular session on Wall Street. During standard trading, higher Treasury yields and a rebound in oil pushed investors away from risk-sensitive assets, contributing to losses across major indices. Traders also adopted a wait-and-see stance ahead of the closely watched U.S. nonfarm payrolls report scheduled for Friday, which could influence the near-term path of monetary policy.
Oil and geopolitics
Oil climbed sharply on Monday after U.S.-Iran relations appeared to resume military hostilities for the first time in about a month, reigniting concerns about supply disruptions. The escalation raised doubts about diplomatic efforts to de-escalate tensions after Washington imposed more stringent economic sanctions on Tehran last week.
Shipping activity through the Strait of Hormuz remained curtailed, with recent indications showing transit volumes at only a fraction of pre-conflict levels. That constrained movement of crude and related products added to the upward pressure on crude prices.
The jump in oil also intensified concerns that inflation could remain elevated. A sustained increase in energy costs is one of the factors that market participants say could contribute to persistent inflationary pressures, which in turn could prompt the Federal Reserve to adopt a more hawkish stance.
Equity performance and seasonal note
On Monday, the S&P 500 closed down 0.3%, the NASDAQ Composite fell 0.1%, and the Dow Jones Industrial Average declined 0.7%. Despite the pullback in the session, Wall Street recorded notable gains in August, aided by a rebound in technology stocks after steep losses the month prior. Still, September has historically been a weaker month for equities, leaving open the question of whether the recent advance can be sustained.
Rate expectations move higher after Fed comments
Markets increased the probability they assign to a rate increase this year after Fed Chair Kevin Warsh delivered a relatively hawkish speech on Friday at the Jackson Hole economic symposium. In his remarks, Warsh reiterated the Fed’s commitment to achieving a 2% annual inflation target. Although he did not directly state that rates would be raised, his tone led investors to ramp up expectations that the central bank may need to lift rates to counteract sticky inflation.
According to the CME FedWatch tool, the market-implied chance of a 25 basis point rate hike in September rose to 64.4%, up from 42.7% the prior week.
Outlook
With geopolitical tensions pushing energy prices higher and recent central bank commentary tilting hawkish, investors are approaching the rest of the week with caution. Attention will remain on the upcoming U.S. jobs data for fresh signals on inflation and the Fed’s likely policy trajectory.