US STOCKS-Wall St faces lower open on pressure from elevated Treasury yields

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Futures off: Dow 0.84%, S&P 500 1.02%, Nasdaq 1.15%

(Updates before markets open)

By Johann M Cherian and Pranav Kashyap

Dec 30 (Reuters) - U.S. stock indexes were poised for a lower open on Monday, as sparse trading volumes and the specter of rising Treasury yields cast a cloud over the traditionally strong year-end rally for equities.

At 08:33 a.m. ET, Dow E-minis were down 363 points, or 0.84%, S&P 500 E-minis were down 61.75 points, or 1.02%, and Nasdaq 100 E-minis were down 248.75 points, or 1.15%.

Equities tend to do well in the last five trading days of December and into the first two days of January, a phenomenon dubbed the Santa Claus rally. The S&P 500 has gained 1.3% on average during the period since 1969, according to the Stock Trader's Almanac.

The benchmark index eked out marginal gains last week, with analysts pointing to a strong run earlier in the year that sent valuations soaring. The index has been trading in a bull market for over two years and is poised to end its second consecutive year with gains of more than 20%.

Much of this year's rally was fueled by optimism around interest rate cuts, artificial intelligence integration boosting corporate profitability and on expectations that President-elect Donald Trump's policies could spur economic growth.

However, some analysts expect Trump's policies to be inflationary, with the yield on the benchmark 10-year note trading near its highest level since May 2024. On the day, it dipped to 4.57%.

"If yields continue to hold at these levels... this will be a strong headwind for equity prices, as investors choose the relative safety of a near-guaranteed 5% return on funds in U.S. Treasuries, compared with the uncertainty of stocks, many of which are trading at or near all-time highs," said David Morrison, senior market analyst at Trade Nation.

The rise in Treasury yields since early December has pressured the S&P 500 and the Dow, setting the indexes on track for their roughest month since April.

After the Federal Reserve struck a cautious tone at its recent meeting, markets toned down their rate-cut expectations for 2025. They now expect the first reduction in May next year, according to the CME Group's FedWatch Tool.

Markets also monitored developments around the country's debt ceiling. Treasury Secretary Janet Yellen said late on Friday that the Treasury Department may need to take "extraordinary measures" by as early as Jan. 14 to prevent the United States from defaulting on its debt.

Later in the week, investors will scrutinize the ISM manufacturing activity survey for December and a weekly report on jobless claims, ahead of a key employment report due in the following week.

Growth stocks weakened in premarket trading. Tesla dropped 2.4%, Meta dipped 1.2%, while chip company Broadcom (AVGO) lost 2.4% and Nvidia (NVDA) slipped 1.6%.

South Korea ordered an emergency safety inspection of its entire airline operation system after the country's worst air disaster over the weekend involving a Boeing (BA) plane. Boeing's (BA) shares were down 3.6%.

Trading is expected to be impacted by thin volumes in the run up to the New Year holiday on Wednesday and is likely to remain subdued until Jan. 6. (Reporting by Johann M Cherian and Pranav Kashyap in Bengaluru; Editing by Devika Syamnath)