Bank of America Sends Interest Rate Warning: 8 Key Items Shaping the Stock Market Tuesday

These are the early headlines and other items poised to influence the market at the start of the trading day. As we share this collection of market drivers, futures point to a weak start to the trading day when U.S. listed equities being trading later this morning.

1. U.S. stock index futures slipped on Tuesday as higher crude oil prices, elevated Treasury yields and an uncertain outlook for AI demand kept investors at bay… While there is little clarity so far on how such a slowdown would work, the declines have added to the gloom in markets at a time when above-target inflation and fears of higher borrowing costs have already made the backdrop for equities more fragile. The Federal Reserve is expected to raise interest rates, with traders pricing in a 92% chance of a hike on Wednesday. (Reuters)

The last time the 10-year Treasury yield touched 5% was ‌October 2023. That one-day episode was accompanied by a mild selloff in stocks. A more sustained rise above 5% in 2007, in the run-up to the global financial crisis, came just before the S&P 500 shed nearly 5% over two months and much more later. Similar to our comment earlier this year about about the duration of the war between the U.S. and Iran, the length of time Treasury yields are above 5% will be a key factor in the market’s reaction.

With the U.S.-Iran war timetable now expected to run at least through the mid-term elections and possibly longer, likely keeping inflation pressures in place, our thinking is Treasuries above 5% will not only be a headwind for equities, but other capital raising activity and similar project hurdle rates. This has us laser focused on consensus S&P 500 EPS expectations for Q4 2026 and 2027. Currently, FactSet sees those figures rising 25% and 15% compared to prior year levels. For the current quarter that figure is just shy of 27%.

2. Bank of America (BAC) expects its investment banking fees to drop by at least 10% in the ‌third quarter, while sales and trading revenue will be flat, CEO Brian Moynihan said on Monday… Moynihan projected investment banking revenue to be between $1.6 billion and $1.8 billion in the third quarter, down from $2 billion in the same period a year earlier… He said the deals pipeline remains strong, but cautioned if interest rates go up, that will slow down some of the financing demand. (Reuters)

Back in August, we discussed why we’d be paying close attention to the IPO market and other sources of investment banking fees. Given our comments above about Treasury yields and the lack of a high profile IPO until Anthropic’s offering, which is now slated for October, we’re sitting on the sidelines with financial stocks. Yes, trading revenue could surprise to the upside if September lives up to its reputation, but the slowdown in investment banking activity in the current quarter means less earnings leverage in the current quarter.

On Monday, we shared potential levels as to where we may pick up more shares of our two remaining financial holdings. As we shared in that alert, those levels are subject to market and individual company developments, the individual stock technical setups as well as that for the S&P 500. As such, our pickup levels should be viewed as a guideline, not a hard and fast rule.

3. American oil executives warned for months that the prolonged closure of the Strait of Hormuz was bound to cause a fuel crisis. Now, they say it is here. Commercial fuel stocks around the world have been depleting for more than six months, and strategic crude reserves can’t be tapped much further. Attacks last week shut down a crucial crude pipeline in Saudi Arabia that bypassed the Strait, stranding at least 2.5 million barrels a day from an already tight global oil market, analysts estimate. (WSJ)

We read that as oil, gas and diesel prices remaining at elevated levels for longer, that could very well translate into another round of fuel surcharges. At a minimum, that points to inflationary forces remaining and potentially heating up further, sapping disposable incomes as we move into the holiday shopping season.

Did someone say holiday shopping? Already?

4. Amazon’s biggest sale before Black Friday is almost here. Prime Big Deal Days 2026 officially returns Tuesday, Oct. 6 and Wednesday, Oct. 7, giving Prime members 48 hours to score major discounts on tech, home essentials, beauty favorites, toys, kitchen gear and holiday gifts. (USA Today)

Here comes Amazon (AMZN) and what is increasingly looking like the unofficial start to the holiday shopping season. According to Deloitte’s annual holiday retail forecast, holiday retail sales are projected to total between $1.70 trillion and $1.71 trillion during the November 2026 through January 2027 period, an increase of 4.0% to 4.8% from the same period in 2025. Once again, e-commerce is expected to grow at a brisker clip, up between 7.5% to 8.4% year over year, leading Deloitte to forecast $316.1 to $318.9 billion in sales. Looking through Bain’s 2026 holiday shopping forecast, the firm expects in-store sales to grow by 2.5%, in line with the last two years, but it sees a brisker pace of nonstore sales, up 9% year over year.

With gas prices and other inflationary forces hitting consumer disposable incomes, we are likely to see a barrage of competing activity around Amazon’s Prime Big Deal Days event. Not really a surprise, but to us the larger question is what will the level of promotional activity be this year compared to last year to win shoppers and their dollars? The answer will shape margin and bottom line expectations.

5. It’s crunch time for cryptocurrencies. The Senate will vote on the Clarity Act, a key bill for crypto regulation, on Tuesday afternoon… It’s still a tight call. GOP senators have been making an 11th-hour push to get support from Democrats, Barron’s reported Monday. But the odds of the bill passing this year slipped to 19% Tuesday from 31% (on Monday), according to prediction market Polymarket. (Barron’s)

Not the best odds we’ve seen, and they help explain why the likes of Ark Invest’s Cathie Wood was selling crypto-related stocks earlier this week. Still, we’ll pay attention to Tuesday afternoon’s vote and subsequent commentary to determine what could be next for crypto.

6. Jefferies assumed coverage of Welltower with a Buy rating and price target of $275, up from $261. The firm says senior housing remains its preferred way to invest in healthcare real estate due to favorable demographics and limited new supply. Wolfe Research analyst Nigel Coe assumed coverage of WM with a Peer Perform rating.

While we certainly agree with Jefferies thesis on Welltower (WELL) shares, we question the Peer Perform rating for Waste Management (WM) at Wolfe Research based on the prospects for more favorable margin expansion in the coming quarters. However, it’s not lost on us that the upward move in diesel and gas prices has the potential to slow that progress. It also gives us reason to think about 2027 pricing actions for the core inelastic residential waste business.

7. Economic data today per TipRanks: ADP Employment Change (Weekly), Empire State Manufacturing Index (September).

8. Companies reporting today per TipRanks: PM – Trip.com (TCOM)

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At the time of publication, TheStreet Pro Portfolio was long AMZN, BAC, WELL and WM.