U.S. stock futures declined on Monday, with technology shares leading the downturn as geopolitical tensions pushed oil prices higher, overshadowing a strong sales report from Taiwan Semiconductor Manufacturing Co. (NYSE:TSM). Nasdaq-100 futures fell approximately 1.25%, a steeper drop than the S&P 500's 0.44% decline and the Dow Jones Industrial Average's 0.13% dip.
The selloff in tech stocks was driven by a combination of rising crude oil prices and higher Treasury yields. Brent crude climbed above $79 per barrel following fresh U.S. military strikes against Iran, raising concerns about inflation and potential Federal Reserve tightening. The two-year Treasury yield rose to 4.2393%, its highest level since early 2025, as rate futures priced in 39 basis points of additional tightening by year-end.
Taiwan Semiconductor, a key supplier to Nvidia Corp. (NASDAQ:NVDA) and Apple Inc. (NASDAQ:AAPL), reported June revenue surged 67.9% year-over-year, contributing to record second-quarter sales of NT$1.27 trillion ($39.62 billion). The results, which beat analyst expectations, initially offered some reassurance about chip demand. However, investors remain focused on whether these sales will translate into sustainable profits, especially as the cost of capital rises.
The divergence between the Nasdaq and the Dow highlights a shift in market dynamics. Tech stocks, often considered 'long-duration' assets due to their reliance on future cash flows, are particularly sensitive to rising interest rates. Bank of America Corp. (NYSE:BAC) analysts noted that hyperscalers have invested $234 billion in 2024, and free cash flow is on track to turn negative for the first time since 2007, making expensive stocks riskier in a rising rate environment.
Oil's rally is reshaping expectations for monetary policy. According to the CME FedWatch tool, the probability of at least two Federal Reserve rate hikes by December rose to 50.9%, up from 47.6% on Friday. 'The crude oil price has been the driver,' said Tony Sycamore of IG. However, Thomas Mathews of Capital Economics expressed caution about the dollar's potential gains, stating, 'It's not clear to me the greenback would gain as much this time.'
Physical shipping data through the Strait of Hormuz, a critical chokepoint for global oil and LNG shipments, showed only six vessels transiting on Sunday, a five-week low. Before the conflict escalated in late February, about one-fifth of daily global oil and LNG moved through the strait. Sycamore noted that investors appear to view the weekend strikes as an escalation under a fragile truce rather than a complete breakdown, but cautioned that 'how accurate that view is remains to be seen.'
Earnings season is set to intensify this week, with major banks reporting results. JPMorgan Chase & Co. (NYSE:JPM) is scheduled to release its quarterly results on Tuesday at 7 a.m. EDT, followed by Goldman Sachs Group Inc. (NYSE:GS) at 7:30 a.m. Investors will scrutinize trading and fee income against funding costs and potential credit issues. The S&P 500 is expected to post second-quarter profit growth of 23.6%, according to FactSet, with 89% of the 18 companies that have reported so far beating earnings estimates.
Key economic data this week includes the June Consumer Price Index (CPI) on Tuesday at 8:30 a.m. EDT, followed by producer price numbers on Wednesday. Federal Reserve Chair Kevin Warsh is set to testify before the House on Tuesday and the Senate on Wednesday. TSMC will release its full quarterly results on Thursday. Market participants will closely watch whether oil prices and the two-year yield remain elevated; if the Nasdaq continues to lag the Dow by more than a percentage point, it may signal a repricing of money costs rather than a broader retreat from AI-related demand.
