US stock futures indicate a negative start to Tuesday’s trade, as technology stocks retreat from recent highs amid surging bond yields and higher oil prices, reinforcing inflation concerns.
The S&P 500 was headed for a third straight day of losses as index futures retreated 0.4%, while Nasdaq-100 futures and Dow Jones Industrial Average futures were down 1.1% and 0.1%, respectively.
The losses extended Monday’s declines as oil prices accelerated higher and bond yields jumped to trade near multidecade highs. Among key individual stocks, Nvidia Corp dropped 1.9% as the cost of protecting its debt against default approached a high reached last month.
Western Digital, Sandisk and Marvell Technology were also down between 4% and 5%.
Treasury yields rise amid fiscal, inflation concerns
The 30-year Treasury bond yield climbed nearly 2 basis points to 5.33%, nearing the highest level since 2002 amid a worsening US fiscal situation and persistently high inflation, CNBC reported.
The US fiscal deficit jumped to $432.3 billion in July, its highest monthly total since March 2021, pushing the year-to-date shortfall to nearly $1.8 trillion. Interest paid to finance the nearly $40 trillion national debt has cost the government about $1.2 trillion this year, the report showed.
In addition, the rally in oil prices has supported the rise in bond yields. The jump in yields can increase pressure on the economy and raise costs across various asset classes.
Even as recent inflation readings have shown relatively low levels of overall price increases in June and July, the annual inflation rate remains well above the Federal Reserve’s 2% target.
Equity markets are struggling under the weight of rising borrowing costs as bond investors demand higher premiums to finance governments running large fiscal deficits and to shield against persistently sticky inflation. Elevated oil prices have also reinforced expectations that central banks may need to maintain a tighter monetary policy stance.
Investors are now looking ahead to the minutes of the Fed’s July meeting and Chairman Kevin Warsh’s remarks at the annual Jackson Hole symposium for further clues on the policy outlook.
Oil prices rise as US-Iran tensions persist
Crude oil prices remained higher in trade as hopes for a near-term peace deal between the US and Iran were dashed after US President Donald Trump said he was not interested in extending the 60-day interim peace deal, which expired on Monday.
He also threatened to bomb Oman if the country gets in the way of the US blockade of Iranian ships in the Strait of Hormuz, igniting fresh tensions in the region.
Brent crude futures jumped to $92 per barrel in trade, while US crude futures topped $85 per barrel. Last month alone, Brent crude zigzagged between $72 and $102 as hopes rose and fell that the United States and Iran could reach a deal that would allow oil tankers to freely exit the Persian Gulf again.
The US has previously threatened to attack key infrastructure and nuclear facilities in Tehran if the blockade continues, but Iran has continued to strengthen its grip on the key waterway and said it could only step back if its conditions are agreed to by the US.
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