U.S. equity index futures traded lower on Tuesday as investors assessed another increase in crude oil prices, higher Treasury yields and renewed military tensions in the Middle East.
The indicated decline follows two consecutive sessions of losses for U.S. equities. Crude oil futures rose 2.5% on Tuesday after gaining almost 3% during the previous session, increasing market attention on the potential implications of energy prices for inflation and monetary policy.
The benchmark 10-year Treasury yield also extended its advance, reaching its highest level since January 2025.
“Long-term US yields are still historically high having risen last week despite Treasury’s expanded buyback programme, suggesting the pressure extends beyond expectations for Fed policy,” Daniela Hathorn, Senior Market Analyst at Capital.com.
She added, “Heavy government borrowing, elevated term premium and growing competition for capital continue to underpin yields, creating a less comfortable environment for highly valued equities.”
Markets assess possibility of another Fed rate increase
Market expectations for Federal Reserve policy have shifted following comments from Fed Chair Kevin Warsh last Friday.
CME Group’s FedWatch Tool indicated a 63.9% market-implied probability of a 25-basis-point interest-rate increase at the central bank’s next meeting.
The probability represents current market pricing and can change as investors receive additional economic data. It does not indicate what decision the Federal Reserve will ultimately make.
Attention this week will include several U.S. economic releases, with the monthly employment report scheduled for Friday.
Major U.S. indices extend recent losses
Wall Street finished lower on Monday after also declining during Friday’s session. The major averages recovered some ground later in the day but remained in negative territory at the close.
The Dow Jones Industrial Average declined 374.09 points, or 0.7%, to 53,185.90. The S&P 500 dropped 25.62 points, or 0.3%, to 7,686.14, while the Nasdaq Composite edged 31.53 points, or 0.1%, lower to 26,370.89.
The market moves came as tensions between the U.S. and Iran increased following their first exchange of strikes in more than a month.
The U.S. attacked two Iranian rocket launchers on Larak Island over the weekend. Iran subsequently launched an attack against two U.S. bases in Jordan.
Crude oil futures gained almost 3% during Monday’s session following those developments.
Airline shares fall while energy stocks advance
The increase in crude oil prices coincided with declines among airline stocks. The NYSE Arca Airline Index dropped 3.2% on Monday, reaching its lowest closing level in more than three months.
Rate-sensitive areas of the equity market also moved lower as Treasury yields increased. The Philadelphia Housing Sector Index fell 1.9%, while the Dow Jones Utility Average declined 1.4%.
Gold and retail shares also traded lower, while energy stocks advanced alongside crude oil prices.
Investors entering Tuesday’s session are assessing the interaction between higher energy prices, Treasury yields and inflation expectations while awaiting U.S. economic data that could provide additional information ahead of the Federal Reserve’s next policy meeting.
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