US pre-open: Stocks to drop as bond yields top 5%

(Sharecast News) - US stock futures were in the red on Monday morning as the yield on a 10-year US Treasury topped 5% for the first time in 16 years, while ongoing uncertainty surrounding the conflict in the Middle East continues to weigh on sentiment.

The interest rate on 10-year bond yields was up 8 basis points at 5.006% ahead of the opening bell on Wall Street.

Futures trading showed the Dow Jones Industrial Average, S&P 500 and Nasdaq all down 0.4% by 0526 ET.

Commenting on the recent sell-off of US Treasuries in recent weeks, analysts at Morgan Stanley said in an email that the "asymmetry in the market's reaction to incoming data" has been particularly interesting.

"Upside surprises to growth have brought sharp increases in long-end yields, while downside surprises to inflation have met with muted rallies. To us, this means that for market participants, upside surprises to growth fuel doubts that the pace of deceleration in inflation is sustainable. In this context, it is no surprise that upside growth surprises have mattered more to long-end yields than downside inflation surprises."

The ongoing bombing of Gaza continued this weekend, along with airstrikes in the Jenin in the northern occupied West Bank, while a ground invasion by the Israeli military remains on the cards.

"The risk of a broader escalation of the conflict, including potential concerns at Israel's northern border, is likely to keep markets on edge," said Patrick Munnelly of Tickmill Group.

The economic data calendar was looking pretty sparse for Monday's session, though things will pick up in the coming days with US PMIs, inflation, GDP and durable goods orders figures scheduled for release.

In company news, Chevron futures were lower on the news that it is to acquire Hess in an all-stock transaction worth $53bn. The oil giant said the combined company will grow production and free cash flow "faster and for longer" than its current five-year guidance.

"This combination positions Chevron to strengthen our long-term performance and further enhance our advantaged portfolio by adding world-class assets," said Chevron's chairman and chief executive Mike Wirth.

Eyes will turn to tech stocks this week with Microsoft, Alphabet, Meta and Amazon all scheduled to release earnings over the next three days, followed by Apple next week.

"This week the US earnings season really hots up with earnings reports from a good chunk of the 'Magnificent Seven' of tech stocks who, like their cinematic counterparts, have been standing tall alone against a wave of malign forces this year," said AJ Bell investment director Russ Mould.

"Expect more chatter about AI but that alone may not be enough to sustain these stocks, with valuations allowing little margin for error when it comes to the hard currency of revenue and earnings. Even in-line numbers may result in raspberries from the market.|