Where we are: S&P 500 futures are currently trading around 5285, down roughly 0.5% from Friday’s close. The overnight range has been relatively tight, but the downside bias is evident, reflecting concerns about rising yields and energy prices. We’re seeing some profit-taking after last week’s gains, particularly after the late pullback as the week ended.
What’s driving it: Rising US Treasury yields are the primary headwind for equities this morning, fueled by persistent inflation concerns and elevated oil prices. The 10-year Treasury yield is sitting at 4.47%, up 1bp on the day, and the 10Y real yield is a notable headwind, climbing to 2.0%. The market’s pricing in a prolonged period of restrictive monetary policy, and the “higher for longer” narrative is gaining traction, even as traders have discounted near-term Fed cuts. This yield dynamic, coupled with concerns about Middle East tensions and their impact on energy supply, is dampening risk appetite. The market impact of Nvidia earnings on Wednesday is also creating some wariness.
- US 10Y Real Yield at 2.0%, putting pressure on gold and risk assets.
- WTI Crude trading above $101, adding to inflationary pressures.
- The net non-commercial positioning in S&P 500 futures remains modestly short, suggesting limited room for a significant short squeeze, but is off recent lows, so the window is closing.
NY session focus: The main focus today will be on how the market absorbs the higher yield environment. Watch the 2s10s spread, currently at +0.5%, for signs of further steepening, which could provide some relief for risk assets. Keep an eye on the 08:30 ET data dump. Key levels to watch are 5275 (support) and 5300 (resistance). The trade that’s at risk is chasing AI infrastructure names higher ahead of Nvidia earnings on Wednesday. The pain trade would be a sharp reversal in yields if incoming data weakens significantly, sparking a renewed rally in growth stocks, although this looks unlikely given the current macro backdrop.