Middle East Conflict Pushes Oil Prices Higher, Another Headwind for Inflation

* Escalating geopolitical tensions and central banker pushback on rate cuts put equity futures in the red this morning - we will stick to our portfolio plan

* Morgan Stanley bests quarterly expectations - more after its morning earnings call

* Tractor Supply is the latest company to warn about supply disruptions - we expect more to come as earnings season heats up

* Portfolio quick hits on Apple, Microsoft, and Deere

We have another shortened trading week ahead. US equity futures are pointing to a lower open as the yield on the 10-year Treasury moves back above 4%. Yields are moving higher on fresh comments from both Fed and European Central Bank officials that push back on market expectations for rate cuts to begin later this quarter.

Despite reporting better-than-expected top and bottom-line quarterly results, Action Alerts PLUS name Morgan Stanley MS shares are trading off this morning. The company holds its earnings conference call starting at 8:30 am ET this morning and we'll have more in-depth comments once we digest management's comments and the Q&A session.

Factors are fueling the rebound in Treasury yields:

* European Central Bank interest rates are likely to come down from record highs this year but there is a cloud of uncertainty over the timing of the moves. Similar to expectations for the US Federal Reserve, the market sees six rate cuts by the ECB this year with the first move coming in March or April, a timeline some policymakers have openly rejected as too aggressive.

* Raphael Bostic, the Atlanta Fed president, and Federal Open Market Committee voting member this year, expects "to see much slower progression of inflation moving forward" and noted there are "some risks that inflation may stall out altogether." Bostic, according to reports, believes rates may need to stay on hold until at least summer to prevent prices from rising again.

Supporting Bostic's warning, more companies are starting to warn about the impact of shipping disruptions in the Red Sea, something we are likely to hear much more about as we move further into the December quarter earnings season. Joining Tesla TSLA , Tractor Supply TSCO shared deliveries to the company have been delayed anywhere from two to 20-plus days as major container ship operators re-route vessels away from the Suez Canal.

The escalating conflict in the Middle East, specifically in and around Red Sea shipping lanes, is leading oil prices to move higher, another headwind for continued inflation progress. And geopolitical tensions are climbing following comments from Yemen's Houthi movement that it will expand its targets in the Red Sea region to include US ships, and that it would keep up attacks after U.S.-led strikes in Yemen.

This is likely to extend Red Sea disruptions, supply chain issues, and elevated shipping rates, issues that are likely to be cited by companies as the December quarter earnings season heats up. As we've discussed, the longer this goes on the more likely it will disrupt expected inflation progress. These escalating tensions are likely to be a positive for our shares of Lockheed Martin LMT as well as our SPDR Gold shares GLX.

All of the above has us sticking with our portfolio plan as we kick off what will be a busy week for the market. Fortunately, it looks like the risk of a government shutdown may be off the board as US lawmakers agreed on yet another temporary spending bill that will keep the government funded till early March.

Portfolio Quick Hits

Reports indicate Apple AAPL is offering rare discounts on its iPhones in China, reducing retail prices by up to 500 yuan (about $70) amid rising competition in the smartphone arena. Additionally, to circumvent a potential US ban, Apple will abandon the blood oxygen feature for Apple Watch.

Microsoft MSFT announced the availability of Copilot Pro, a new subscription that delivers the most advanced features and capabilities of Microsoft Copilot to individuals looking to supercharge their Copilot experience.

Deere DE said it would tap SpaceX's satellite fleet to propel the tractor maker's digital farming push and help automate planting and harvesting in remote locations.

Action Alerts PLUS is long MS, LMT, AAPL, MSFT, DE.