S&P 500 futures up cautiously amid Mideast tensions, rising Treasury yields

What’s driving markets

Earnings season moves into full swing this week, but “will likely remain under the shadow of mounting geopolitical tensions in the Middle East and a broad-based discomfort and lack of appetite that comes along with it,” Ipek Ozkardeskaya, senior analyst at Swissquote Bank, said in a note.

Read: Israel-Gaza conflict threatens to reawaken U.S. inflation, investors worry

Israel continued to pound the Gaza Strip ahead of an expected ground invasion of the Hamas-controlled enclave by the Israeli military. The prospect of a ground incursion has drawn warnings from Iran, which in turn was warned by Western leaders and diplomats not to escalate the conflict.

Oil futures were steady early Monday after jumping at the end of last week as traders feared an escalation could interrupt supplies. But crude prices remain below 2023 highs set in late September before the Hamas attack. Analysts said oil will remain a bellwether for other asset prices.

See: Oil prices in spotlight as Iran warns of escalation of Israel-Hamas war

Susannah Streeter, head of money and markets at Hargreaves Lansdown noted that the war between Israel and Hamas was just another geopolitical fracture that, alongside the Ukraine/Russia war and continued tensions between the U.S. and China, could damage global economic growth.

“Warnings from JPMorgan Chase CEO, Jamie Dimon, that the world may be facing the most dangerous time in decades overshadowed the bank’s buoyant earnings report on Friday,” said Streeter.

More of Wall Street’s big banks will report results on Tuesday, with Bank of America
BAC,
-0.52%,
Goldman Sachs
GS,
-0.18%
and BNY Mellon
BK,
-0.17%
stepping up to the plate. Big tech results will start with Netflix
NFLX,
-1.53%
and Tesla
TSLA,
-2.99%
on Wednesday.

Read more: Banks beat expectations but some economic cracks form as caution abounds

Earnings Watch: Wall Street’s Q3 expectations have been all over the place. Now, a swing to profit growth is ‘likely’ — with a bigger rebound next year

U.S. economic updates set for release on Monday include the Empire State manufacturing survey for October, due at 8:30 a.m. Eastern.

Philadelphia Fed President Patrick Harker is due to speak at 10:30 a.m. and again at 4:30 p.m.

The benchmark 10-year Treasury yield
BX:TMUBMUSD10Y
was up nearly 6 basis points to 4.685% as traders remained wary that recent sturdy U.S. economic data and signs of sticky inflation will keep interest rates higher for longer.

Tom Lee, head of research at Fundstrat, said it was understandable that investors are wary given the geopolitical environment, but he thinks equities will take supportive cues from three sources.

“First, the direction of yields and it seems like the U.S. 10-year yield is drifting lower. Lower is constructive for stocks,” Lee said in a note published over the weekend.

The second factor is that expectations for a Fed rate hike are likely to fall from the current 30% to zero as fresh data comes in. “While many fear a resurgence of inflation, Fedspeak shows that the rise in longer term yields is accomplishing the tightening the Fed wants,” he said.

The third point is that a positive third-quarter earnings season is likely to cause a flood of buying by investment managers who, according to Goldman Sachs, are short $47 billion of U.S. equities. “As GS points out, there is an asymmetry and an upside tape will bring in buyers,” said Lee.

Companies in focus

• Ford Motor Co.
  F,
  -1.58%
  is recalling 238,364 Explorers, as the rear axle horizontal mounting bolt may fracture, causing the drive shaft to disconnect. Shares were little changed in premarket activity.

• Drugstore chain Rite Aid Corp.
  RAD,
  -16.81%,
  facing billions of dollars of debt related to opioid lawsuits, filed for bankruptcy Sunday. Shares rose 4.9%.