Wall Street set for lower open as investors assess rate path, geopolitical risks
Corrects typo in headline
Cboe Volatility index hits over one-month high
Pfizer gains on report Starboard Value takes $1 bln stake in co
Oil stocks track crude prices higher
Futures down: Dow 0.37%, S&P 500 0.38%, Nasdaq 0.49%
By Lisa Pauline Mattackal and Pranav Kashyap
Oct 7 (Reuters) -U.S. stock indexes were on track to open lower on Monday as investors recalibrated their expectations for the Federal Reserve rate cuts this year, while exercising caution amid heightened geopolitical tensions and ahead of key inflation data, policymaker comments and third-quarter earnings.
Investors are pricing in an over 88% chance of a 25 basis point rate cut at the Fed meeting in November, according to the CME's FedWatch tool. Just a week ago, markets were hopeful of a second, outsized 50 basis point reduction.
However, a bumper September non-farm payrolls report last Friday pointed to a still-robust jobs market, helping the Dow Jones Industrial Index .DJI notch a record closing high.
U.S. Treasury yields rallied as investors reassesed the Fed's rate path, with the yield on benchmark 10-year notes US10YT=RR exceeding 4% for the first time in two months.
The rise in yields pressured rate-sensitive megacap growth stocks. Alphabet GOOGL.O fell 0.5% and Microsoft MSFT.O 0.4% in premarket trading.
Apple AAPL.O lost 0.9% after Jefferies assumed coverage with a "hold" rating, while Amazon AMZN.O lost 1.5%, pressured by a Wells Fargo downgrade to "equal weight."
Escalating geopolitical tensions in the Middle East after Hezbollah rockets hit Israel's third-largest city of Haifa early on Monday, also kept investors on the sidelines.
The CBOE Volatility index .VIX, Wall Street's fear gauge, rose as high as 21.45, at its highest level in over one month.
But crude prices extended gains on concerns about supply disruptions from the Middle East conflict, boosting shares of oil companies. Exxon Mobil XOM.N and Marathon Oil MRO.N rose over 1%.
"(The) concerns that would keep people on the sidelines have to do with higher energy prices in the near term, (the) impact of that inflation and that yields which have been falling precipitously (have) now firmed up," said Art Hogan, chief market strategist at B Riley Wealth.
Among other movers, shares of Pfizer PFE.N rose 2.5% after a report that activist investor Starboard Value has taken a roughly $1 billion stake in the drug giant.
U.S. S&P 500 E-minis EScv1 were down 21.75 points, or 0.38%, Nasdaq 100 E-minis NQcv1 were down 99.75 points, or 0.49%, Dow E-minis 1YMcv1 were down 156 points, or 0.37%
Futures for the small-cap Russell 2000 index RTYcv1 slipped 0.3%.
While markets continue to fine tune its expectations for interest rate cuts, most market watchers remain optimistic about the underlying strength of the economy and outlook for equities.
Goldman Sachs raised its 2024 year-end S&P 500 .SPX target to 6,000 from 5,600, and also lowered its odds of a U.S. economic recession to 15% from 20%.
The consumer price index data, this week's most closely watched data, is due on Thursday.
Several Fed officials are also slated to speak this week, with comments expected from Michelle Bowman, Neel Kashkari, Raphael Bostic and Alberto Musalem later on Monday.
Third-quarter earnings for S&P 500 companies also begin this week, with several major banks scheduled to report on Oct. 11.
Earnings will be a significant test for Wall Street's rally this year - the S&P 500 is up about 20% year-to-date and stands near record highs.
Reporting by Lisa Mattackal and Pranav Kashyap in Bengaluru; Editing by Shinjini Ganguli
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