Where we are: Dow futures are currently trading around 39,850, slipping further into the red after an overnight range of 39,980-40,120. This puts the Dow on track to open lower than Friday’s New York close, continuing the late-week pullback. Resistance sits at 40,200, while initial support lies around 39,700.
What’s driving it: Rising US Treasury yields and elevated oil prices are weighing on the Dow, mirroring the broader risk-off sentiment. The 10-year Treasury yield sits at 4.47%, its continued climb is putting pressure on equities, especially with the 2-year/10-year spread widening to 0.5%. Adding to the bearish backdrop is the elevated level of WTI crude at $101.56 a barrel, fuelling inflation concerns. There is no fresh US catalyst today.
- The US 10-year real yield (TIPS) at 2% remains a headwind for risk assets, as higher real rates typically weigh on equity valuations.
- The VIX, while down to 17.26, is not low enough to suggest complacency, and a spike higher could trigger further equity selling.
- Speculator positioning in Dow Jones futures is moderately short, suggesting limited squeeze potential, but also a degree of bearish conviction.
NY session focus: Focus will remain on Treasury yields and oil price action, with traders watching for any indication of a reversal. Keep an eye on the 10-year yield; a break above 4.50% could accelerate the Dow’s decline. Nvidia’s earnings after Wednesday’s close will be a key event for sentiment, potentially providing some support if results are strong. The trade that’s working is shorting rallies in the Dow. The trade at risk is buying the dip, as macroeconomic headwinds persist. The pain trade is a surprise dovish pivot from the Fed, sending yields lower and equities sharply higher.