U.S. equity futures pointed to another negative start on Tuesday as rising Treasury yields and higher crude oil prices threatened to extend Wall Street’s two-session pullback.
Technology stocks were positioned to bear the brunt of the selling, with Nasdaq 100 futures down 1.3%. The weakness came as the yield on the 30-year U.S. Treasury climbed to its highest level in nearly two decades, increasing pressure on growth stocks whose valuations are particularly sensitive to borrowing costs.
Persistent inflation concerns linked to the Middle East conflict have helped push longer-term yields higher, even as recent economic indicators have reduced expectations for an imminent Federal Reserve rate increase.
Oil Rally Complicates the Inflation Outlook
U.S. crude futures advanced another 0.8% on Tuesday after surging 2.6% in the previous session, with investors becoming increasingly doubtful that Washington and Tehran will reach an agreement capable of easing the conflict.
Higher energy prices risk adding fresh inflationary pressure to the U.S. economy and could keep financial conditions restrictive even if the Federal Reserve refrains from raising interest rates.
Daniela Hathorn, Senior Market Analyst at Capital.com noted the increase in treasury yields comes “despite softer recent economic data reducing expectations for an imminent Fed hike.”
“Instead, the long end is responding to persistent inflation risks, heavy government borrowing and growing competition for capital—including debt issuance associated with the AI investment boom,” Hathorn said.
She added, “That creates an uncomfortable environment for equities because financial conditions can tighten even without the Fed raising rates.”
Major U.S. Indices Extend Recent Pullback
The weaker futures followed Monday’s broadly negative trading session, when stocks struggled for direction initially before selling intensified later in the day.
The S&P 500 fell 40.70 points, or 0.5%, to 7,745.06, closing near its session low and moving further below the record closing high established last Thursday.
The Dow dropped 272.63 points, also 0.5%, to 53,459.78, while the Nasdaq declined 84.25 points, or 0.3%, to 26,644.91.
Monday’s losses extended the modest pullback recorded during Friday’s session.
Iran Rules Out Ceasefire Negotiations
Crude prices accelerated higher as geopolitical tensions surrounding Iran returned to the centre of market attention.
U.S. oil futures gained more than 2% on Monday after indications emerged that Tehran had ruled out talks with Washington to extend a 60-day ceasefire scheduled to expire on Tuesday.
“We did not start any negotiations at all, and the U.S. violated the understanding from the very beginning; therefore, the 60-day issue is not relevant,” Iran Foreign Ministry spokesman Esmail Baghaei said, according to state news agency Tasnim.
Concerns about a broader regional confrontation increased further after President Donald Trump threatened Oman during an interview with Fox News, warning, “If Oman gets in the way, we’ll bomb the s— out of them.”
The comments came as Iran and Oman appeared to be making progress towards an understanding over management of the Strait of Hormuz, one of the world’s most important routes for energy shipments.
Airlines Hit as Energy Costs Rise
Airline stocks were among Monday’s biggest casualties as the jump in crude prices raised concerns about higher fuel expenses. The NYSE Arca Airline Index fell 2.8%.
Software stocks also experienced substantial selling, with the Dow Jones U.S. Software Index dropping 2.7%.
Telecommunications, computer hardware and housing shares were also under pressure, while the market displayed greater resilience in oil producers, biotechnology companies and semiconductor stocks.
The combination of elevated long-term borrowing costs, persistent geopolitical uncertainty and rising energy prices leaves Wall Street facing a difficult backdrop in which financial conditions could tighten even without additional Federal Reserve action.
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