U.S. stock futures tumble as 10-year Treasury yield tops 5%

How stock futures are trading

• S&P 500 futures
  ES00,
  -0.34%
  fell 27 points or 0.6%, to 4,221.25

• Dow Jones Industrial Average futures
  YM00,
  -0.40%
  dropped 203 points, or 0.6%, to 33,054

• Nasdaq-100 futures
  NQ00,
  -0.37%
  fell 112 basis points, or 0.7%, to 14,551

On Friday, The Dow Jones Industrial Average 
DJIA
fell 286.89 points, or 0.9%, to close at 33,127.28. The S&P 500 
SPX
shed 53.84 points, or 1.3%, to finish at 4,224.16. The Nasdaq Composite 
COMP
dropped 202.37 points, or 1.5%, to end at 12,983.81.

What’s driving markets

The 10-year yield
BX:TMUBMUSD10Y
jumped 9 basis points to push past the crucial 5% level on Monday, last trading at 5.013%. That’s the highest level in 16 years.

The 10-year yield finished last week with the biggest weekly rise since April, climbing to near the psychologically important level of 5% as Middle East tensions drove some haven purchases.

“Higher for longer has been hitting home of late, with the back end of the yield curve on the rise in response to shifting expectations around the timing of a Fed rate cut. With energy prices on the rise in the face of a potentially drawn out conflict in the Middle East, there is a strong chance that we see inflation continue to push higher,” said Joshua Mahony, chief market analyst at Scope Markets, in emailed comments.

“With interest rates expected to remain elevated for some time yet, the US treasury will also be facing a rapidly inflating debt that questions whether US bonds are truly the reliable haven they have always been perceived to be,” he said.

Last week saw all three major benchmarks record their largest percentage drops since the week ended Sept. 22, with the Nasdaq sinking 3.2% and the S&P 500 dropping 2.4%, pressured by the bond yield climb and worries about an expanding Israel-Hamas war.

Two Israeli hostages were released over the weekend and some initial aid got through to Gaza, with signs a ground invasion by Israel has been delayed. Oil prices
CL.1,
-0.51%

BRN00,
-0.30%
were flat.

Read: Stock-market investors face reality of 5% Treasury yields. Here’s what’s next.

Rising yields have also surrounded worries that another interest rate hike is en route, following comments from Chairman Jerome Powell last week. The data calendar is empty for Monday, but the week will bring updates on the housing market, growth, but also the Fed’s preferred inflation gauge, the personal consumption expenditures price index, due Friday.

On the earnings front, an important batch of results is rolling out this week that could determine the course of the remaining third-quarter earnings season, with Microsoft Corp.
MSFT,
-1.40%
and Google parent Alphabet Inc.
GOOGL,
-1.56%
reporting Tuesday, Meta Platforms Inc.
META,
-1.33%
reporting Wednesday and Amazon.com Inc.
AMZN,
-2.52%
on Thursday. Market optimism has wavered following mixed bank earnings.

Read: Big-tech results will decide ‘where we go from here’ amid investor caution. They would fall if it weren’t for this one company

And then there are the technical factors for investors to fret about, with the S&P 500 closing below the 200-day moving average, seen by many Wall Street chartists as the dividing line between longer-term uptrends and downtrends. 

“The index is now just 1% away from falling below the bull boundary around 4,190,” Michael Kramer, found of Mott Capital Management, told clients in a note. He said the next stop for the index could be 4,183.