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S&P 500, Nasdaq set to open lower as oil output cut stokes inflation worries

2023-04-03T12:45:34Z

Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., March 30, 2023. REUTERS/Brendan McDermid

The S&P 500 and the Nasdaq were set to open lower on Monday as rising oil prices brought back inflation worries and fueled bets of another interest rate hike by the Federal Reserve in its next meeting.

Saudi Arabia and other OPEC+ oil producers announced further output cuts of around 1.16 million barrels per day, threatening an immediate rise in prices.

This comes just days after cooling inflation raised hopes that the Fed could soon end its aggressive monetary tightening.

“We could see inflation bottom out a little bit higher than anticipated, which may mean that the Fed continues their rate hiking a lot longer and further than many currently expect,” said Paul Nolte, senior wealth adviser and market strategist at Murphy & Sylvest.

Major technology stocks and other growth shares such as Apple Inc (AAPL.O), Amazon.com Inc (AMZN.O), Microsoft Corp (MSFT.O) and Alphabet Inc (GOOGL.O) fell between 0.5% and 1.1% in premarket trade tracking higher U.S. Treasury yields.

This, coupled with a 3.2% fall in Tesla Inc (TSLA.O) after posting modest quarter-on-quarter sales growth, set the stage for the Nasdaq (.IXIC) and S&P 500 (.SPX) to snap three days of gains at the market open.

However, a 4.4% gain in energy major Chevron Corp (CVX.N) and a 3% rise in UnitedHealth Group Inc (UNH.N) following a softer cut to 2024 Medicare Advantage payments by the United States were set to help the Dow Jones (.DJI) gain at the open.

Shares of other energy firms such as Exxon Mobil Corp (XOM.N) and Occidental Petroleum Corp (OXY.N) were also up 4.4% and 6.3%, respectively.

Bets by traders were largely tilted towards a 25-basis point rate hike in May, with odds of a pause at 46.3%, according to CME Group’s Fedwatch tool.

U.S. stocks have weathered turbulence in the global banking sector to notch gains in the first quarter, with the S&P 500 (.SPX) jumping 7% and bouncing back from a near 20% drop in 2022.

The tech-heavy Nasdaq (.IXIC) recorded its strongest first-quarter jump of 17% since mid-2020.

“We’ve seen the tech sector rally so hard and so far above everything else that we do expect some profit taking during the month of April,” Nolte said.

Investors will closely monitor S&P Global and ISM manufacturing PMI data for March on Monday, with the latter expected to show manufacturing activity weakened in March.

The first-quarter earnings season is also around the corner, with companies expected to start reporting quarterly results in the next few weeks.

At 7:58 a.m. ET, Dow e-minis were up 128 points, or 0.38%, S&P 500 e-minis were down 3.5 points, or 0.08%, and Nasdaq 100 e-minis were down 91.25 points, or 0.69%.

Among other stocks, shares of American Airlines Group Inc (AAL.O) and Delta Air Lines Inc (DAL.N) edged lower on rising crude prices.

McDonald’s Corp (MCD.N) rose 0.5% after a report said the burger chain is temporarily closing its U.S. offices this week and preparing to inform corporate employees about layoffs.

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