The S&P 500 and the Nasdaq are both set to open lower on Monday due to rising oil prices, which have brought back concerns about inflation. This has fueled bets of another interest rate hike by the Federal Reserve in its upcoming meeting. With Saudi Arabia and other OPEC+ oil producers announcing further output cuts of around 1.16 million barrels per day, the threat of an immediate rise in prices is looming.
Inflation worries
This development comes just days after cooling inflation raised hopes that the Fed could soon end its aggressive monetary tightening. However, many experts predict that the Fed may need to continue raising rates longer and further than anticipated due to the potential for inflation to bottom out at a higher rate than expected.
Impact on major technology stocks and other growth shares
Major technology stocks and other growth shares such as Apple Inc (NASDAQ:AAPL), Amazon.com Inc (AMZN), Microsoft Corp (NASDAQ:MSFT), and Alphabet (NASDAQ:GOOGL) Inc fell between 0.5% and 1.1% in premarket trade. This was in response to the higher U.S. Treasury yields.
Tesla Inc (NASDAQ:TSLA) also saw a 3.2% fall after posting modest quarter-on-quarter sales growth. This set the stage for the Nasdaq and S&P 500 to snap three days of gains at the market open.
Other stocks affected
However, energy major Chevron Corp (NYSE:CVX) saw a 4.4% gain, and UnitedHealth Group Inc (NYSE:UNH) experienced a 3% rise following a softer cut to 2024 Medicare Advantage payments by the United States. This could help the Dow Jones gain at the open. Shares of other energy firms such as Exxon Mobil Corp (NYSE:XOM) and Occidental Petroleum Corp (NYSE:OXY) were also up 4.4% and 6.3%, respectively.
Rate hike predictions
Bets by traders are largely tilted towards a 25-basis point rate hike in May, with odds of a pause at 46.3%, according to CME Group’s (NASDAQ:CME) Fedwatch tool.
Market outlook
U.S. stocks have weathered turbulence in the global banking sector to notch gains in the first quarter, with the S&P 500 jumping 7% and bouncing back from a near 20% drop in 2022. The tech-heavy Nasdaq recorded its strongest first-quarter jump of 17% since mid-2020.
Expectations for the future
“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,” said Paul Nolte, senior wealth adviser, and market strategist at Murphy & Sylvest. Investors will closely monitor S&P Global (NYSE:SPGI) 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.
In conclusion, the S&P 500 and Nasdaq are both set to open lower on Monday due to rising oil prices, which have fueled concerns about inflation. Although the Fed’s aggressive monetary tightening may soon end, the potential for inflation to bottom out at a higher rate than expected means that the Fed may need to continue raising rates longer and further than anticipated. As always, investors should stay informed and closely monitor the market for any changes.
