Wall Street eyes muted open as Middle East tensions weigh

Wall Street is bracing for a cautious start on Tuesday as tensions in the Middle East escalate and U.S. Treasury yields retreat. However, positive comments from Federal Reserve policymakers have provided some relief to investors. The dovish remarks suggest that the central bank may not raise short-term policy rates further if long-term U.S. Treasury bond yields continue to rise. This news has caused the 10-year Treasury yield to come off its 16-year peak.

Traders are now estimating an 86% chance of interest rates remaining unchanged in November and a 72% chance in December, according to CME’s FedWatch tool. Market focus will be on the remarks of several Fed officials, including Atlanta’s Raphael Bostic, Minneapolis’ Neel Kashkari, San Francisco’s Mary Daly, and Board Governor Christopher Waller throughout the day.

In the Middle East, Israel has reclaimed control of the Gaza border and launched fierce air strikes in response to Hamas attacks. While the conflict raises concerns, experts believe that if it remains contained, it may not have a significant impact on the markets. Investors are also closely watching inflation data and eagerly awaiting the beginning of banking earnings on Friday.

Despite these uncertainties, all three major U.S. stock indexes closed higher on Monday, with energy leading the gains due to supply worries sparked by Middle East tensions. Crude oil prices rallied as a result. Looking ahead, investors will be monitoring inflation readings, including the September producer price and consumer price indexes, as well as the release of the Fed’s September meeting minutes. Additionally, big U.S. banks such as JPMorgan Chase, Wells Fargo, and Citigroup will report their quarterly results later in the week.

In terms of individual stocks, PepsiCo saw a 0.9% increase after raising its annual profit forecast for the third time this year. Rival Coca-Cola also experienced an 0.8% uptick. Truist Financial gained 4.4% following reports that the bank is in talks to sell its insurance brokerage unit to private equity firm Stone Point for approximately $10 billion. Rivian Automotive advanced 2.9% after UBS upgraded the electric vehicle maker’s stock to “buy” from “neutral.” However, Corning faced a 2.7% loss after J.P.Morgan downgraded the specialty glass maker’s shares. Chip firms Skyworks Solutions and Qorvo dipped 3.8% and 3.7%, respectively, after Citigroup downgraded their stocks. On a positive note, Arm Holdings climbed 1.7% as several banks initiated “buy” ratings following the end of the “quiet period” for its initial public offering.

Overall, while geopolitical tensions and fluctuating Treasury yields may create some uncertainty, positive developments from the Federal Reserve and strong performances from certain companies are providing a sense of optimism in the market. Investors will be closely monitoring upcoming events and earnings reports for further insights into the direction of the economy.