US stock futures rally as Nasdaq 100 jumps 1% on earnings optimism

Nasdaq 100 futures rose 1% to lead US equity index gains, with S&P 500 futures adding 0.57% and Dow futures up 0.43%, as traders weighed easing inflation against renewed Middle East tensions.

"The market is pricing in a soft-landing scenario where inflation cools without triggering a recession, but the geopolitical risk premium is far from priced out," said Michael Graham, director of research at Canaccord Genuity.

The rally followed a volatile session Friday that saw the S&P 500 close at 7,515.34, down 0.79%, while the Nasdaq Composite shed 1.55% to 25,873.18 and the Dow slipped 0.26% to 52,498.64. The Federal Reserve Bank of Cleveland's Inflation Nowcasting tool projects July headline inflation at 3.32%, a second consecutive monthly decline from May's three-year high of 4.2%. Core PCE, the Fed's preferred gauge, remains elevated.

The session marks the start of a critical week, with five of the six largest US banks reporting quarterly results Tuesday and Fed Chair Kevin Warsh beginning his semiannual monetary policy testimony before Congress. Oil prices added to the cross-asset complexity, with Brent crude trading above $80 a barrel after President Donald Trump reinstated a naval blockade of the Strait of Hormuz.

The advance in growth-sensitive sectors reflected optimism that second-quarter earnings will validate the AI investment thesis. Taiwan Semiconductor Manufacturing reported a 77% surge in earnings per share and 36% revenue growth in the June quarter, reinforcing demand for AI computing infrastructure through 2029 or 2030, according to CEO C.C. Wei. Nvidia, Broadcom, and other semiconductor names that have sold off from recent highs were among the most actively traded pre-market names. Meta Platforms also drew attention after rumors of a new cloud computing division helped the stock rally from recent lows, despite trading at a discount to peers at 21 times forward earnings.

The 10-year Treasury yield held near a one-year high at 4.62%, while the dollar index remained firm. Gold traded at $3,997 an ounce, and WTI crude rose 1.6% to $79.39 a barrel as the Strait of Hormuz blockade threatened global energy supplies. Energy stocks were expected to open higher, tracking the surge in crude prices, while rate-sensitive technology and real estate sectors faced headwinds from the elevated yield environment. The VIX, Wall Street's fear gauge, remained above 20, reflecting lingering uncertainty around the geopolitical outlook.

The geopolitical backdrop remained fluid after President Trump formally notified Congress that the US was once more at war with Iran, according to a POLITICO report dated July 10. The Strait of Hormuz blockade, which Iran said made passage "currently unfeasible," has pushed Brent crude to its highest level since 2022, adding a supply-side shock to an economy already grappling with elevated inflation.

Traders will watch for any shift in tone from Warsh during his two-day testimony, particularly on whether the Fed views the recent inflation moderation as durable enough to consider rate adjustments later this year. The CME FedWatch tool showed a 45% probability of a rate cut by December, down from 60% a month ago. JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, and Goldman Sachs are all scheduled to report Tuesday, with consensus estimates calling for a 7% year-over-year increase in aggregate earnings for the S&P 500 banking sector.

This article is for informational purposes only and does not constitute investment advice.