Dow futures slipped around 70 points on Tuesday, or 0.2%, as investors prepared for a busy week of corporate earnings, including major companies like General Motors and 3M.
The plunge came a day after all Wall Street indices displayed considerable gains of over 1%.
Market optimism was fueled by hopes for a resolution to the US government shutdown and easing tensions in US-China trade relations.
5 things to know before Wall Street opens
1. This year’s US government shutdown has already become third-largest in the history, but Monday came with some hope of resolution.
Majority Leader John Thune aims to bring a funding bill to the floor this week to pay essential employees amid stalled negotiations.
The primary reason behind the deadlock remains Democrats’ emphasis on extending Affordable Care Act subsidies, while Republicans oppose linking to government funding.
Leaders from both parties remain deadlocked, with the Senate repeatedly failing to advance the House-passed continuing resolution.
2. Q3 earnings season is in full swing, and all eyes are on big names like 3M and General Motors.
3M has already set a positive tone as the company posted a 3.5% jump in sales and boosted its operating margin by 130 basis points.
Adjusted earnings per share were up 10% from last year, which was strong enough for 3M to raise its full-year profit outlook.
General Motors will report before the market opens, and investors are watching closely to see how the auto sector is doing as the economy continues to recover.
Zooming out, early numbers from S&P 500 companies look solid: earnings are up 15.4% and revenues are higher by about 8%.
3. US Treasury yields declined on Friday, as investors closely monitored the ongoing government shutdown and growing optimism for a resolution this week.
The 10-year Treasury yield dropped nearly 2 basis points to 3.97%, while the 2-year note fell about 1 basis point to 4.55%, and the 30-year bond yield decreased 2 basis points to 4.559%.
The market sentiment received a boost as Kevin Hassett, White House National Economic Council Director, expressed optimism that the shutdown could end soon.
4. The expectation of a rate cut by the Federal Reserve at its late October meeting is also helping the market sentiment, as many analysts predict a quarter percentage point reduction.
This anticipation is driven by recent economic data indicating a cooling labor market and cautious inflation trends.
The consumer price index (CPI) data expected on Friday will be crucial in shaping the Fed’s decision, offering insights into whether inflation remains above its 2% target.
5. Asian markets kept climbing, with Japan and China leading the gains as US-China trade tensions show signs of cooling and investors grow more optimistic about the global economy.
The Nikkei is inching toward the 50,000 mark, helped by expectations that Japan’s new leadership will roll out pro-growth policies. Chinese stocks were also higher, lifted by better progress in trade talks and looser credit conditions.
Over in Europe, markets opened in the green as well, supported by hopes that trade tensions will continue to ease and by solid corporate earnings.
The STOXX 600, along with key indices like the FTSE 100 and DAX, posted modest gains. Defense stocks in particular got a boost as geopolitical risks appear to stabilize.
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