Middle East Tensions and Corporate Earnings Weigh on Stock Futures; Oil Prices Jump Amid Strait of Hormuz Dispute

U.S. stock futures began the trading week on a cautious note, registering modest declines Sunday evening. The dip reflects investor apprehension stemming from renewed geopolitical tensions in the Middle East and anticipation of a critical week packed with corporate earnings announcements.

Futures contracts for the Dow Jones Industrial Average fell by 135 points, or 0.3%. Similarly, S&P 500 futures edged down 0.3%, and Nasdaq-100 futures saw a 0.5% decrease.

The Middle East became a focal point of global concern over the weekend as Iran and the U.S. engaged in a fresh exchange of airstrikes. Tehran reportedly targeted American facilities across various Gulf nations and controversially announced the closure of the strategic Strait of Hormuz. President Donald Trump, however, swiftly countered this claim on Sunday, asserting that the vital shipping lane remained open for commercial transit.

This latest escalation follows Trump's directive on Saturday to launch airstrikes against Iran, a response to a prior Iranian attack on a commercial vessel navigating the strait.

Predictably, crude oil prices reacted sharply to the heightened tensions. Brent crude futures climbed 3.7%, settling at $78.86 per barrel, while West Texas Intermediate futures also rose by over 3% to reach $74.05.

Ben Emons, founder of Fed Watch Advisors, commented on the situation, stating, "The Strait closure will hang over the market with a risk-off tone." He further noted that "unless there is a serious prospect of a closure in the coming months, which could cause major global energy shortages… the focus next week will (also) be on CPI, Warsh, and bank earnings," highlighting other significant economic indicators on the horizon.

Beyond geopolitical concerns, a busy earnings season is set to kick off. A total of 28 S&P 500 companies are slated to report their quarterly results this week, including financial heavyweights like JPMorgan Chase, Goldman Sachs, Morgan Stanley, Bank of America, Citigroup, and Wells Fargo. Tech giant Netflix, alongside healthcare leaders Johnson & Johnson and UnitedHealth, are also scheduled to announce their performance.

Expectations for this earnings cycle are notably high, with analysts, on average, projecting a robust year-over-year profit growth exceeding 23% for S&P 500 companies in the second quarter, according to FactSet data.

Larry Adam, Chief Investment Officer at Raymond James, singled out the technology sector as one to closely monitor, particularly observing whether advancements in Artificial Intelligence (AI) can continue to fuel earnings growth within the industry.

Adam conveyed to clients, "Despite concerns that hyperscalers may start to moderate AI-related capital spending, we expect capex plans to be reaffirmed and to rise through 2028." He justified this outlook by pointing to "tangible evidence that businesses benefit from AI adoption," noting that "mentions of AI across all 11 sectors are up 98% YoY, reaching new highs."

Adding to the economic calendar, the crucial June Consumer Price Index (CPI) report is scheduled for release on Tuesday morning.

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Trends remain bullish for stocks near term, says Fundstrat

Meanwhile, Mark Newton, Fundstrat's head of technical strategy, offered an optimistic outlook in a Friday note, asserting that "near-term US equity trends remain bullish." He observed a "strengthened" technical picture last week, evidenced by "good follow-through after Wednesday's successful tests of intraday support and reversal higher in SPX and QQQ." Newton anticipates "a breakout in SPX is imminent, though QQQ will take more time."

Stocks are coming off a mixed week

Reflecting on the previous week's performance, major U.S. stock indexes showed a mixed picture:

• The Dow Jones Industrial Average declined by 0.5%, ending a four-week winning streak and marking its weakest weekly showing since March 27.
• The S&P 500 advanced 1.2%, securing its fourth weekly gain in five weeks.
• The Nasdaq Composite rose 1.7%, also achieving its fourth weekly increase in five weeks.
• The Russell 2000, however, fell 0.6%, experiencing its second consecutive negative week—a pattern not seen since a four-week losing streak concluded on March 20.

Stock futures open lower

Earlier in the evening, Dow Jones Industrial Average futures had initially opened lower by 88 points, or 0.2%, with S&P 500 futures also shedding 0.2%, and Nasdaq-100 futures down 0.3%.