US equity futures traded modestly lower on Tuesday as Treasury yields climbed and investors prepared for Wednesday’s Federal Reserve interest-rate decision.
The benchmark 10-year Treasury yield moved above 5%, reaching its highest level since July 2007. The increase comes as markets assess the outlook for inflation and monetary policy.
A Federal Reserve rate increase is widely expected. CME Group’s FedWatch Tool showed markets assigning a 92.5% probability to a 25-basis-point increase.
AJ Bell head of markets Dan Coatsworth said, “Market commentators have long argued that Treasuries hitting 5% is the trigger for an equity market correction. At this level, investors might wonder what’s the point in holding risky equities when they can get 5% on low-risk government bonds.”
Coatsworth added, “It is a psychological level and can sometimes act as a warning sign for a market correction rather than be a guaranteed tipping point for equities to slump.”
Middle East Supply Concerns Support Oil Prices
Crude prices remained another factor for markets on Tuesday, with reports of additional Houthi attacks on Saudi Arabia adding to uncertainty over Middle East energy supplies.
October crude futures finished Monday 1.3% higher after initially rising almost 5%.
The earlier increase followed Saudi Arabia’s closure of a pipeline used to bypass the Strait of Hormuz after a drone attack. A planned meeting in Oman involving Iran and Gulf states over reopening the strait was also postponed.
US President Donald Trump said on Truth Social that Russia and Ukraine had agreed to stop targeting each other’s energy infrastructure.
Trump separately repeated his claims that Iran wants to “make a deal, quickly and badly” and that “oil is flowing through the Hormuz Strait.”
Semiconductors Lead Monday’s Technology Declines
Monday’s US session ended lower despite the major averages recovering substantially from their intraday lows.
The Nasdaq Composite closed 0.6% lower at 26,186.41, after falling as much as 1.3%. The S&P 500 declined 0.5% to 7,619.98 and the Dow Jones Industrial Average finished 0.3% lower at 52,421.20.
Semiconductor shares recorded larger declines, sending the Philadelphia Semiconductor Index down 5.9% to its lowest close in more than a month.
Computer hardware stocks also fell, with the NYSE Arca Computer Hardware Index losing 4.8%. The Philadelphia Oil Service Index dropped 4%, while networking, gold and banking shares also declined.
Software stocks outperformed, with the Dow Jones U.S. Software Index advancing 3.3%.
Anthropic CEO Calls for Slower AI Development
Concerns surrounding artificial intelligence development also drew attention to technology stocks.
Anthropic CEO Dario Amodei wrote, “We must slow the pace at which we improve the capabilities of AI models. Progress will still seem fast, and we must make wise use of the time we gain.”
“The measures I propose to advance the frontier at a safe pace will not be easy,” Amodei added. “But I believe we owe it to humanity to try.”
With Treasury yields, oil prices and technology-sector developments contributing to market uncertainty, investors are awaiting the Federal Reserve’s Wednesday announcement for further guidance on the interest-rate outlook.
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