Stock futures drop as inflation fears persist and oil prices rise

Equity futures fell on Monday morning as investors pondered persistent signs of inflation and supply challenges and waited for more data on corporate earnings.

S&P 500, Dow and Nasdaq contracts fell before the opening bell. Treasury yields rose especially on the long end of the curve, and the benchmark 10-year yield hovered around 1.61%, its highest level since June.

Mid-size U.S. West Texas crude futures extended their gains after posting a seventh consecutive weekly advance, jumping 3% Monday morning to $ 82 a barrel and heightening concerns about the rising prices for energy, raw materials and inputs. WTI crude futures hovered at their highest level since 2014, while Brent crude was at its highest since 2018 after surpassing $ 84 a barrel.

Stocks have been choppy in recent weeks as investors consider the implications for the stock market of ongoing price increases amid slowing economic growth. High demand and supply-side shortages have driven oil and natural gas commodity prices up to cotton, and labor shortages have raised the specter of lasting wage increases and higher costs for employers. Last week’s September employment report “Had an inflationary feeling with strong wage growth, an increase in the working week and a decrease in [labor force] participation, ”Neil Dutta, head of US economics at Renaissance Macro Research, wrote in an email last week.

This week, investors will receive the latest Consumer Price Index and the Producer Price Index from the Bureau of Labor Statistics, each for September. Increases in basic consumer prices, excluding food and energy, are expected to remain high on a historic basis, just below the 30-year high of June price increases. Producer prices, meanwhile, are expected to accelerate further last month.

“‘Stagflation’ was the most common word in conversations with clients this week as equity market volatility remained high,” David Kostin, chief US equities strategist at Goldman Sachs, wrote in a note Monday morning. “Stagflation is not the basic expectation of our economists, but the historic poor performance of stocks in environments of stagflation helps explain why investors are worried.”

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Over the past 60 years, the S&P 500 has returned 2.5% on the median per quarter, but has fallen 2.1% during periods of stagflation or high inflation and weak GDP growth, Kostin added.

“Despite the near-term uncertainty, we expect the stock market to continue to recover as investors become convinced that the current pace of inflation is ‘transient’,” Kostin said.

For investors, the pick up in third quarter earnings season this week will help provide further feedback to businesses on the impacts of rising prices on the recovering economy. The big banks are on the bridge to report this week, with names like JPMorgan Chase (JPM), Bank of America (BAC), Morgan Stanley (MRS) and Goldman Sachs (SG) each because of the publication of quarterly results.

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Monday at 7:30 a.m. ET: Stock futures indicate lower open

Here’s where the markets were trading before the opening bell:

• S&P 500 Futures Contracts (ES = F): -15.50 points (-0.35%), to 4,366.75

• Dow Futures (YM = F): -69 points (-0.2%), to 34,557.00

• Nasdaq Futures (NQ = F): -85.75 points (-0.58%) to 14,722.50

• Raw (CL = F): + $ 2.73 (+ 3.44%) to $ 82.08 per barrel

• Gold (CG = F): + $ 2.00 (+ 0.11%) to $ 1,761.20 per ounce

• 10-year cash flow (^ TNX): +4.1 bps for a yield of 1.612%

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Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter