By Daniela Sabin Hathorn, Senior Market Analyst at Capital.com
Wall Street closed at a fresh record high on Tuesday, supported by continued enthusiasm around artificial intelligence and expectations for S&P 500 earnings growth of around 30% in the third quarter. However, S&P 500 and Nasdaq futures edged slightly lower this morning as investors reassessed the landscape in light of strong earnings expectations and the renewed rise in bond yields.
The US Treasury market remains the main source of pressure, with the 10-year yield back at around 5.31% and the 30-year yield approaching 5.68%, erasing some of the relief seen in markets on Tuesday. This is keeping pressure elevated on equity valuations, particularly beyond the mega-cap technology stocks that continue to lead the indices. Investors are also awaiting the Federal Open Market Committee minutes, due today, for indications of how willing the US central bank may be to raise interest rates again later this month. Markets currently assign only around a 20% probability to a 25-basis-point rate increase.
At the same time, oil prices continue to grind higher, with Brent back above $101 per barrel after Houthi attacks on Saudi airports brought concerns about the conflict in the Middle East back to the forefront. Although the rise remains limited compared with the surge recorded in September, crude prices staying higher for longer increases the risks facing markets more broadly over the longer term. For now, the combination of rising oil prices and bond yields is weighing more heavily on Asian and European equities, with the major indices trading lower this morning.
