U.S. stock futures slipped in early premarket trading on Wednesday, with technology-related contracts leading the decline as investors braced for the May Consumer Price Index (CPI) report, which is expected to reveal the fastest annual inflation since April 2023. The data, along with escalating geopolitical tensions between the U.S. and Iran, has heightened concerns about persistent inflation and the Federal Reserve's ability to cut rates this year.
E-mini S&P 500 futures traded at 7,330.25, down 62.50 points, while Nasdaq 100 futures fell 371.25 points to 28,745.75, and Dow futures dropped 374 points to 50,535, according to Barchart data. The declines were broad-based, with tech stocks particularly vulnerable as rising oil prices and geopolitical risks added to inflation fears.
The May CPI report, scheduled for release at 8:30 a.m. ET by the Bureau of Labor Statistics, is expected to show a 0.5% month-over-month increase and a 4.2% year-over-year gain, according to Reuters. Core CPI, which excludes volatile food and energy prices, is forecast to rise 0.3% monthly and 2.9% annually. If realized, this would mark the highest annual headline CPI since April 2023, adding pressure on the Fed to maintain a hawkish stance.
Geopolitical tensions escalated over the weekend as the U.S. Central Command conducted self-defense strikes on Iranian air-defense, ground-control, and radar targets near the Strait of Hormuz on June 9. This followed an Iranian attack that downed a U.S. Army Apache helicopter. In retaliation, Iran's Revolutionary Guards launched missile and drone strikes targeting U.S. military bases in Jordan, Kuwait, and Bahrain. Oil prices edged higher but remained subdued, with Brent crude at $91.66 per barrel and West Texas Intermediate at $88.46, after hitting seven-week lows the previous day.
The combination of hot inflation data and rising oil prices poses a dilemma for the Federal Reserve, which is set to meet on June 16-17. Charu Chanana of Saxo Markets noted that while the Fed cannot aggressively hike rates into a pure supply shock, it also cannot ignore inflation expectations if oil prices continue to rise. The May jobs report, which showed nonfarm payrolls increasing by 172,000 and the unemployment rate steady at 4.3%, further complicates the outlook, as solid hiring reduces the likelihood of rate cuts.
According to a Reuters poll, nearly 70% of economists now expect the Fed to hold its key rate at 3.50% to 3.75% through 2026, while rate futures indicate at least one rate hike by year-end. This has dampened investor hopes for a rapid easing cycle, particularly for high-growth tech stocks that are sensitive to interest rate movements.
On Tuesday, the S&P 500 slipped 0.3%, the Dow edged up 0.2%, and the Nasdaq composite lost 1%, with chip stocks like Micron, Marvell, and AMD giving up early gains. The premarket losses on Wednesday suggest that a hot CPI print could lift Treasury yields further, putting additional pressure on tech and AI-related names that rely on long-term growth assumptions.
Stephen Stanley, chief U.S. economist at Santander U.S. Capital Markets, told Reuters that there is a good chance headline inflation peaks in May, but this depends on oil prices not spiking further due to Middle East tensions. The market faces a tight setup ahead of the open, with CPI data and oil price dynamics likely to set the tone for the Fed's upcoming meeting.
Traders are watching for two-way risk: a hot core CPI could hit the priciest stocks first, while a softer reading could spark a rebound in premarket losses. The Fed's June 16-17 meeting, which includes updated economic projections, will be crucial in determining the market's next direction.
