Dow Jones and S&P 500: Rising Yields Drag Stock Futures, GM and 3M in Focus

Stock Futures Decline as Interest Rates Rise

Stock futures dropped Tuesday morning, signaling Wall Street’s potential for another losing session as rising interest rates overshadow a strong start to the earnings season. Monday’s session saw the Dow Jones Industrial Average fall by over 344 points, or 0.8%, ending its three-day winning streak. The S&P 500 dipped 0.2%, while the Nasdaq Composite rose by nearly 0.3%.

At 12:50 GMT, Dow futures are trading 43012.00, down 165.00 or -0.38%. S&P 500 Index futures are at 5866.50, down 29.75 or -0.50% and Nasdaq futures are trading 20385.50, down 134.00 or -0.65%.

Despite the recent volatility, the market has experienced notable gains in October, with the S&P 500 reaching a record high, pushing its year-to-date growth to over 22%. Tuesday’s losses, however, could mark the first back-to-back declines for the index since early September.

Technically, if 5850.00 fails as support, traders will start looking for a correction into the 50-day moving average at 5726.08.

Rising Yields Fuel Uncertainty

Traders are increasingly concerned about the Federal Reserve’s approach to future rate cuts, with Treasury yields continuing their upward trend. The 10-year Treasury yield climbed to 4.20% early Tuesday, following an 11-basis-point jump in the previous session. Similarly, the 2-year yield rose to 4.04%.

This surge in yields comes as Federal Reserve officials express caution about future rate cuts. On Monday, Minneapolis Fed President Neel Kashkari and Dallas Fed President Lorie Logan both advocated for a patient and deliberate approach to reducing rates. Kansas City Fed President Jeff Schmid echoed these sentiments, supporting a cautious outlook for further rate cuts, especially after the Fed’s half-point reduction in September.

Strong economic data has contributed to higher yields, further clouding the outlook on rate cuts. The market is pricing in a higher probability of only one additional Fed rate cut this year, with a quarter-point reduction expected at the November 7 meeting. However, traders see only a 33% chance of another cut in December, according to the CME’s FedWatch tool.

Earnings Season: Key Stocks in Focus

While interest rate concerns loom, the earnings season continues to pick up pace. About 14% of S&P 500 companies have already reported their quarterly results, with over 70% surpassing analysts’ expectations.

Cheesecake Factory gained over 3% after activist investor JCP Investment Management pushed for a spinoff of three brands. General Motors posted better-than-expected earnings of $2.96 per share on $48.76 billion in revenue, yet its stock remained slightly down. SAP rose 3% following a strong earnings report, while GE Aerospace dropped 5% after missing revenue estimates.

In addition, 3M surged 5% after exceeding earnings expectations with a third-quarter profit of $1.98 per share. Zions Bancorporation also reported stronger-than-expected earnings, rising 2% on robust quarterly performance.

Market Outlook: Bearish Sentiment Prevails

In the short term, the market faces increased pressure from rising interest rates and Fed uncertainty, which could weigh on investor sentiment.

Despite a strong start to earnings season, the bearish influence of rising Treasury yields may result in continued volatility. A cautious trading environment is expected, with the likelihood of further market declines if yields continue to rise.

Traders should monitor Fed commentary closely and brace for potential downside risks.