US stock futures declined on Thursday, with Dow Jones, S&P 500, and Nasdaq 100 futures falling 0.9%, 0.5%, and 0.73%, respectively. This decline was attributed to a surge in oil prices and rising bond yields, which have heightened concerns about inflation. The price of Brent crude oil rose 4.8% to over $105 per barrel, driven by ongoing concerns about supply disruptions in the Middle East.
The increase in oil prices and bond yields has led to a sell-off in high-risk assets, including technology stocks. Shares of major tech companies such as Amazon, Tesla, and Nvidia fell by around 1% each, while chipmakers Marvell Technology, AMD, and Intel declined by about 2% each. Samsung Electronics also dropped 1.3%, despite expectations of record quarterly earnings.
According to Naeem Aslam, chief investment officer at Zaye Capital Markets, investors are currently weighing two conflicting forces. On one hand, there is the impact of higher financing costs and elevated yields, while on the other hand, there is the strength of earnings and capital spending related to artificial intelligence. The conflicting forces have created uncertainty in the market.
Concerns about financing costs were exacerbated by reports that Broadcom is arranging $50 billion in funding for OpenAI, while Oracle is seeking additional financing. This has raised fears that increased debt issuance by tech companies could lead to greater competition for capital. As a result, the Dow Jones ended a four-session winning streak, and the S&P 500 and Nasdaq retreated from their record highs.
The upcoming earnings season is expected to provide further insight into the market's performance. Major banks, including JPMorgan Chase, are set to report their results, and analysts anticipate that the technology and energy sectors will experience the most significant growth in earnings. According to LSEG data, S&P 500 companies are expected to see a 30.6% increase in earnings on a yearly basis.
Meanwhile, Christopher Waller, a member of the Federal Reserve's Board of Governors, suggested that the central bank may pause its interest rate hikes at the next meeting. However, he also indicated that further rate increases may be necessary to bring inflation back to the target of 2%. Market participants widely expect the Fed to hold interest rates steady in October, but the possibility of a rate hike in December remains.
In early stock movements, Wolfspeed's shares surged 14.5% after the chip company secured a conditional loan commitment of $1.5 billion from the US Department of Defense. Applied Digital's shares rose 1.1% following a significant increase in quarterly revenue. On the other hand, PepsiCo's shares increased 2.4% after the company lowered its annual earnings forecast and announced plans to reduce spending.
Key points
- US stock futures declined due to surging oil prices and rising bond yields.
- Technology stocks were negatively impacted by the sell-off in high-risk assets.
- The earnings season is expected to provide further insight into the market's performance.
