U.S. stock index futures were trading lower on Tuesday after markets had rallied the previous session, as lingering uncertainty about developments in the Middle East eroded some of the earlier relief. The pullback followed President Donald Trump’s decision to postpone threatened strikes on Iran’s power grid, a move he attributed to what he described as "productive talks" with unnamed Iranian officials.
That claim was disputed by Iranian leadership. Mohammad Baqer Qalibaf, speaker of Iran’s parliament, stated that no negotiations with the United States had taken place. Israeli officials added on Tuesday that while they believe the president wants a deal with Iran, any talks would be unlikely to succeed.
Investors initially welcomed Mr. Trump’s comments on Monday, pushing the major U.S. indexes up more than 1% in what was the largest single-day gain since February 6. However, the advance lost momentum as market participants weighed conflicting accounts about whether substantive diplomacy was underway.
Analysts at Deutsche Bank, led by Jim Reid, highlighted the role those denials played in reversing part of the risk-on sentiment. "Iranian officials have repeatedly denied that talks with the U.S. were even happening, which contributed to markets reversing some of the initial risk-on reaction late yesterday and overnight," they said. "Much now depends on the progress of any talks, and whether the more optimistic rhetoric is followed up by concrete action."
At 05:21 a.m. ET on Tuesday, Dow E-minis were down 184 points, or 0.4%, S&P 500 E-minis were down 25.25 points, or 0.38%, and Nasdaq 100 E-minis were down 83 points, or 0.34%.
The conflict in the Middle East has driven oil prices sharply higher, reviving concerns about inflation and complicating the interest rate outlook faced by central banks. The U.S. Federal Reserve adopted a hawkish posture last week, projecting only one rate reduction in 2026. Money markets have moved away from pricing any rate cuts for this year, a reversal from the two reductions participants had expected prior to the outbreak of hostilities.
Expectations for potential rate increases ticked up amid the escalation last week, according to CME’s FedWatch Tool, but those moves were largely unwound following the president’s remarks on Monday. Meanwhile, last week all three major U.S. indexes recorded their fourth consecutive weekly decline, with the Nasdaq suffering its largest weekly loss since early February.
Investors will be watching a flash estimate of S&P Global’s business activity gauge for March and remarks from Federal Reserve Governor Michael Barr later in the week for further guidance on economic momentum and policy direction.
On the corporate front, Jefferies shares rose 8.2% in premarket trading after the Financial Times reported that Japan’s Sumitomo Mitsui Financial Group is considering plans for a possible takeover of the investment bank. Energy producer Battalion Oil reported lower fourth-quarter revenue and saw its shares fall roughly 5% year-on-year in response to the results.
Market participants remain attentive to developments in the Middle East, central bank signals, and incoming economic data as they reassess risk and positioning across equity, bond, and commodity markets.
Key points
- Geopolitical uncertainty - Renewed ambiguity about U.S.-Iran contacts pulled back some of Monday's risk-on rally, affecting equity futures and investor sentiment. Sectors affected include equities broadly and defense-related names.
- Inflation and rates - Higher oil prices have revived inflation concerns and complicated the outlook for central bank policy, influencing bond markets and interest-rate sensitive sectors such as utilities and real estate.
- Individual movers - Jefferies jumped on takeover reports while Battalion Oil slid after weaker quarterly revenue, illustrating the market's sensitivity to corporate news amid broader macro uncertainty.
Risks and uncertainties
- Diplomatic clarity - Conflicting statements about whether talks are occurring create uncertainty about the trajectory of the Middle East conflict, which could further move oil markets and risk appetite.
- Policy direction - Shifts in expectations for Federal Reserve interest rate moves, influenced by inflation and geopolitical-driven commodity swings, pose risks to rate-sensitive sectors and asset pricing.
- Market momentum - Recent volatile swings, including last week’s fourth consecutive weekly decline for major indexes and the Nasdaq’s notable weekly drop, indicate continued sensitivity to headline developments.