U.S. equity futures traded modestly lower on Tuesday, with investors taking a cautious stance ahead of a key inflation release and the first major results of the quarterly earnings season. Markets are also absorbing political tensions surrounding the Federal Reserve, while oil prices continue to rise amid escalating unrest in Iran.
Early pullback in futures
Futures tied to the main U.S. stock indices edged down in early trading as traders positioned for incoming macroeconomic data and corporate earnings. By 03:05 ET, Dow futures were lower by 46 points, or 0.1%, S&P 500 futures slipped 6 points, or 0.1%, and Nasdaq 100 futures declined 39 points, or 0.2%.
Wall Street ended Monday’s session higher after shaking off earlier pressure linked to concerns over a criminal investigation involving Federal Reserve Chair Jerome Powell and President Donald Trump’s proposal to cap credit card interest rates. The rebound was broad-based, with gains across technology, consumer staples and materials.
“Overall, the narrative is largely the same now as it was on Friday, with bulls still in control thanks to improving growth dynamics, healthy earnings, evidence of a generational improvement in productivity, and stimulus […] anticipation,” analysts at Vital Knowledge said in a note.
Scrutiny over Fed investigation
The Trump administration has come under increasing scrutiny after authorising a criminal investigation into Powell, prompting criticism from former Federal Reserve leaders and lawmakers from both sides of the aisle.
According to Reuters, the investigation was approved and launched by Jeanine Pirro, the U.S. Attorney for Washington and an ally of Trump, without briefing Attorney General Pam Bondi or Deputy Attorney General Todd Blanche. In a social media post, Pirro said the Justice Department acted after the Fed declined to engage on cost overruns related to the refurbishment of its Washington headquarters, adding that her office “makes decisions based on the merits.”
The probe has raised concerns about the Fed’s independence and pushed U.S. Treasury yields higher. Former Fed Chairs Janet Yellen, Ben Bernanke and Alan Greenspan criticised the move, saying “[t]his is how monetary policy is made in emerging markets with weak institutions,” and warning of the “negative consequences” for inflation and the broader economy. Republican Senator Thom Tillis also described the investigation as a “huge mistake.”
Inflation reading in focus
Attention now shifts to the December U.S. consumer price index, one of the most closely watched inflation measures ahead of the Federal Reserve’s policy meeting later this month.
Economists expect headline CPI to show a 2.7% annual increase, unchanged from November, with monthly inflation also forecast at 0.3%. Core CPI, which strips out food and energy, is expected to tick up to 2.7% year on year from 2.6%, and to 0.3% month on month from 0.2%.
Analysts at ING warned that core inflation could surprise to the upside, noting that disruptions caused by a prolonged government shutdown likely delayed data collection in November. “Compared with the full month of November 2024, this timing likely skewed that inflation reading lower. Reverting to more standard collection timings in December means risks of a hotter read,” they said.
While the Fed has recently prioritised signs of cooling in the labour market when easing policy, persistent inflation could complicate the outlook. Markets largely expect the central bank to keep rates unchanged at 3.50%–3.75%, according to CME FedWatch.
Big banks kick off earnings season
Investor sentiment could also be shaped by earnings from major U.S. banks, starting with JPMorgan Chase (NYSE:JPM) later on Tuesday. Results from Bank of America (NYSE:BAC), Citigroup (NYSE:C) and Wells Fargo (NYSE:WFC) are due on Wednesday, followed by Goldman Sachs (NYSE:GS) and Morgan Stanley (NYSE:MS) on Thursday.
Alongside inflation data, the bank results are expected to set the tone for equity markets in the early weeks of 2026. While the S&P 500 has extended its gains after a third straight year of double-digit growth in 2025, uncertainty remains around the trajectory of interest rates and rising geopolitical risks.
Oil prices extend rally
Oil prices climbed for a fourth consecutive session, as intensifying anti-government protests in Iran fuelled concerns over potential supply disruptions from the major OPEC producer.
Brent crude futures rose 0.5% to $64.16 a barrel, while U.S. West Texas Intermediate advanced 0.8% to $59.82. Brent touched a seven-week high in the previous session, and WTI reached its highest level in a month.
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