U.S. stock futures trended lower early Tuesday as Wall Street digested heightened geopolitical risks in the Middle East and evaluated equity valuations against rising bond yields.

The Polymarket (CRYPTO: POL) crowd is leaning heavily bearish for the Aug. 18 trading session. The “S&P 500 (SPX) Up or Down on August 18?” contract currently reflects a 27% chance of a higher open.

Why That Number Matters

Traders are confronting a surge in Middle East tensions and an influx of critical retail earnings and economic data:

  • Lower Index Futures: Equity futures are pointing to a negative open. S&P 500 futures fell 0.41%, and Nasdaq 100 futures dropped 0.76%. Dow Jones futures slipped 0.16%, and Russell 2000 futures were down 0.24%.
  • Geopolitics & Energy: President Donald Trump rejected extending a 60-day temporary ceasefire with Iran that expired Monday, without a broader peace agreement. In response, a senior Iranian official threatened that Tehran would shift to a “fully offensive” military posture if diplomatic efforts fail, escalating risks around the critical Strait of Hormuz. Consequently, energy markets reacted, with Brent crude futures rising to $91.27 a barrel and U.S. West Texas Intermediate (WTI) crude climbing to $84.20 a barrel.
  • Earnings & Eco Data: Investors are awaiting earnings from major retail and tech names on Tuesday, including The Home Depot Inc. (NYSE:HD) and Baidu Inc. (NASDAQ:BIDU). Additionally, traders will monitor key economic reports, including July’s housing starts and import prices at 8:30 a.m. ET, followed by industrial production and capacity utilization at 9:15 a.m. ET, and pending home sales index data at 10:00 a.m. ET.

The Bull Case and Market Outlook

While geopolitical risks weigh on futures, the underlying valuation of equities might still be appealing. According to market expert Ed Yardeni, the “Fed’s Stock Valuation Model” (FSVM)—which compares the S&P 500 forward earnings yield to the 10-year U.S. Treasury bond yield—may be working again now that the bond market is no longer manipulated by the Fed’s quantitative easing programs.

Yardeni notes that the spread between the S&P 500’s forward P/E (currently at 19.9) and the reciprocal of the bond yield (currently at 21.4) has narrowed dramatically. Despite the recent rise in the 10-year Treasury bond yield, the S&P 500 remains slightly undervalued under this model. Yardeni highlighted that with the bond yield at 4.68% last week, the fair-value price of the S&P 500 was 8,300.

How the Previous Bet Played Out

The Aug. 17 Polymarket contract resolved “Down.” The contract recorded $65,999 in total trading volume.

On Monday, the SPDR S&P 500 ETF Trust (NYSE:SPY) and Invesco QQQ Trust ETF (NASDAQ:QQQ), which track the S&P 500 and Nasdaq-100, respectively, closed lower. The SPY was down 0.47% to $772.67, while the QQQ declined by 0.16% to $729.87. Meanwhile, the Dow tracker, State Street SPDR Dow Jones Industrial Average ETF Trust (NYSE:DIA), also ended 0.49% lower at $534.19 on Monday.

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Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

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