Futures tracking the S&P 500 and the Nasdaq fell on Monday as a surge in oil prices renewed worries of persistent inflationary pressures, bolstering bets that the U.S. Federal Reserve will deliver another interest rate hike at its next meeting.
Saudi Arabia and other OPEC+ oil producers announced further oil output cuts of around 1.16 million barrels per day, threatening an immediate rise in prices.
This comes just days after data showing cooling inflation fueled hopes that the Fed could soon end its aggressive monetary tightening.
As oil prices jumped, Dow Jones index constituent Chevron Corp (CVX.N) rose 3.8% in premarket trade, while shares of other energy firms such as Exxon Mobil Corp (XOM.N) and Occidental Petroleum Corp (OXY.N) were also up between 3% and 5%.
“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.
An uptick in U.S. Treasury yields pushed 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) down between 0.4% and 1%.
Traders’ bets were largely tilted towards a 25-basis point rate hike in May, with odds of a pause at 39.8%, according to CME Group’s Fedwatch tool.
At 7:01 a.m. ET, Dow e-minis were up 131 points, or 0.39%, S&P 500 e-minis were down 1.75 points, or 0.04%, and Nasdaq 100 e-minis were down 81 points, or 0.61%.
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.
Remarks by Fed Board Governor Lisa Cook on economic outlook and monetary policy are also expected later on Monday.