U.S. stock futures pointed to a lower open on Tuesday, with technology shares bearing the brunt of a continued rise in long-term Treasury yields. The yield on the benchmark 10-year Treasury climbed to 4.788% early in the session, within striking distance of the psychologically significant 4.8% level. This move added fresh pressure on growth-oriented equities, which are particularly sensitive to changes in interest rates.
At 08:29 EDT, the 10-year yield was up 3.4 basis points from Monday's close, trading between a low of 4.764% and a high of 4.798%. The increase outpaced the rise in the two-year yield, which added just 1.6 basis points to reach 4.362%. The 30-year bond yield also advanced, climbing 2.5 basis points to 5.272%. The widening gap between two-year and 10-year yields, now at 42.6 basis points, signals that investors are demanding a higher premium for longer-term debt.
This repricing in the bond market has had a pronounced effect on equity futures. Nasdaq-100 futures dropped 1.21%, nearly double the 0.62% decline seen in S&P 500 futures. The underperformance of tech-heavy indices reflects the sector's vulnerability to rising discount rates, as future earnings are valued less favorably when yields climb.
Oil prices have been a key driver behind the yield surge. Fresh clashes between the U.S. and Iran have reignited inflation concerns, pushing Brent crude to $90.49 a barrel on Monday, a 2.71% gain. West Texas Intermediate also rose 2.83% to $85.76. Higher energy costs threaten to slow the pace of disinflation, which could keep term yields elevated.
Monetary policy expectations are also playing a role. Fed funds futures on Monday indicated a 66% probability of a rate hike in September, according to CNBC. Barclays economists have projected two 25-basis-point increases this year, while UBS's Chief Investment Officer Mark Haefele maintains that rates will stay on hold, arguing that current levels "reinforces the case for locking in yields."
The dollar index rose 0.20% in early trading, reflecting the shift in rate expectations. Cross-asset transmission was evident, with the Nasdaq-100 futures lagging the S&P 500 by 0.58 percentage point. This divergence highlights the heightened sensitivity of growth stocks to interest rate movements.
Looking ahead, the ISM manufacturing data and the JOLTS report due later Tuesday, along with August payrolls on Friday, will provide critical clues on the economy's health and the Fed's next move. The Federal Reserve is scheduled to meet on September 15-16, and market participants will be watching these data points closely.
Risks remain skewed to the upside for yields. A de-escalation in Middle East tensions could trigger pullbacks in oil and bond yields, while weaker-than-expected employment data might reduce the likelihood of a rate increase. Conversely, robust activity numbers could keep the focus firmly on the 4.8% level for the 10-year yield, with implications for equity valuations across the board.
