Futures Dip as Middle East Tensions Increase; Jobs Data Ahead – Reuters

U.S. stock index futures experienced a decline on Wednesday as geopolitical tensions in the Middle East and an ongoing domestic port strike kept investors cautious. This comes ahead of key economic data that may provide insights into the economy’s health and the future of monetary policy.

Wall Street’s primary indices had a weak beginning to the final quarter of the year, with the Dow and Nasdaq reaching approximately two-week lows in the previous session. This was largely due to investor sell-offs in response to missile strikes from Iran against Israel, which were seen as retaliation for Israeli actions in Lebanon.

Despite these tensions, markets managed to stabilize as both Israel and the U.S. pledged to respond forcefully. In premarket trading, oil stocks, including SLB and Occidental Petroleum, climbed roughly 2% each, riding a wave of over 2.5% gains in crude prices as traders reacted to potential supply disruptions from the oil-rich region.

Defense companies like Lockheed Martin and RTX saw their stocks rise by 1.3% and 1.4%, respectively, after the S&P 500 aerospace and defense index reached an all-time high in the previous session. Analysts from ING bank remarked on the volatility of the situation, noting that if Israel’s response remains measured, markets may interpret this as a willingness from both nations to de-escalate after brief hostilities.

By 5:28 a.m. ET, Dow E-minis were down 174 points, or 0.41%, S&P 500 E-minis had dipped 15.25 points, or 0.26%, and Nasdaq E-minis were down 50.25 points, or 0.25%. Small-cap index futures dropped by 0.8%, while safe-haven Treasury bonds pulled back after a surge the previous day. The volatility index, known as Wall Street’s fear gauge, was hovering near a three-week high.

On the data front, the ADP National Employment survey for September is anticipated to provide insights into the labor market, set for release at 8:15 a.m. ET. The crucial non-farm payrolls report for September is scheduled for Friday.

Markets had closed the previous month positively, following an unusual 50-basis-point rate cut by the U.S. Federal Reserve in an effort to bolster the labor market, which has gained increased significance in the central bank’s dual mandate of price stability and low unemployment.

Currently, the likelihood of a smaller quarter-percentage-point rate reduction from the Fed in November stands at 63.3%, up from 42.6% a week prior, according to the CME Group’s FedWatch Tool.

Investors are also keeping a close watch on a dockworkers’ strike along the East and Gulf coasts, which entered its second day. Analysts at JPMorgan estimate that this walkout could cost the U.S. economy around $5 billion daily. Some companies, including Costco, Walmart, and others, have indicated they were prepared for the strike, resulting in their shares remaining stable during premarket trading.

Analysts suggest that the increase in oil prices, alongside the port strike, may contribute to rising inflation, which had recently approached the Federal Reserve’s 2% target.

In other news, Dow-component Nike saw a significant drop of 5% after retracting its annual revenue forecast just as a new CEO prepares to take over the company.

Markets will also be attentive to comments from various policymakers throughout the day.