S&P 500 futures up cautiously amid Mid-East tensions, rising Treasury yields

What’s driving markets

Middle East tensions, oil prices
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-0.12%
back above $90 a barrel, higher Treasury yields and wariness over the third quarter corporate earnings season see equity traders in tentative mood at the start of the week.

“With the number of moving parts on the increase, investors are tending to err on the side of caution,” said Richard Hunter, head of markets at Interactive Investor.

Susannah Streeter, head of money and markets at Hargreaves Lansdown noted that the war between Israel and Hamas was just another geopolitical fracture that, alongside the Ukraine/Russia war and continued tensions between the U.S. and China, could damage global economic growth.

“Warnings from JPMorgan Chase CEO, Jamie Dimon, that the world may be facing the most dangerous time in decades overshadowed the bank’s buoyant earnings report on Friday,” said Streeter.

More of Wall Street’s big banks will report results on Tuesday, with Bank of America
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-0.52%,
Goldman Sachs
GS,
-0.18%
and BNY Mellon
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-0.17%
stepping up to the plate. Big tech results will start with Netflix
NFLX,
-1.53%
and Tesla
TSLA,
-2.99%
on Wednesday.

U.S. economic updates set for release on Monday include the Empire State manufacturing survey for October, due at 8:30 a.m. Eastern.

Philadelphia Fed President Patrick Harker is due to speak at 10:30 a.m. and again at 4:30 p.m.

The benchmark 10-year Treasury yield
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was up nearly 6 basis points to 4.685% as traders remain wary that recent sturdy U.S. economic data and signs of sticky inflation will keep interest rates higher for longer.

Tom Lee, head of research at Fundstrat said it was understandable that investors are wary given the geopolitical environment, but he thinks equities will take supportive cues from three sources.

“First, the direction of yields and it seems like the US 10-year yield is drifting lower. Lower is constructive for stocks,” said Lee in a note published over the weekend.

The second factor is that expectations for a Fed rate hike is likely to fall from the current 30% to zero as fresh data comes in. “While many fear a resurgence of inflation, Fedspeak shows that the rise in longer term yields is accomplishing the tightening the Fed wants,” he said.

The third point is that a positive third quarter earnings season is likely to cause a flood of buying by investment managers who, according to Goldman Sachs, are short $47 billion of U.S. equities. “As GS points out, there is an asymmetry and an upside tape will bring in buyers,” said Lee.