US pre-open: Futures trade lower as investors prep for earnings heavy week

US stock futures were in the red ahead of the bell on Monday as market participants gear up for the busiest week of earnings season and await the Federal Reserve's latest policy decision.

As of 1230 GMT, Dow Jones futures were down 0.63%, while S&P 500 and Nasdaq-100 futures had the indices opening 0.89% and 1.18% lower, respectively.

The Dow closed just 28.67 points higher on Friday after the Bureau of Economic Analysis revealed that the personal consumption expenditures price index, the Federal Reserve's preferred inflation measurement, rose 0.1% month-on-month in December.

Wall Street's year-to-date rally will be put to the test this week, with the likes of McDonald's, General Motors, Apple, Meta Platforms, Amazon, and Alphabet all reporting over the next five days.

Investors will also look to the Federal Open Market Committee, which meets on Tuesday and Wednesday, with the central bank expected to raise interest rates by 0.25%. Traders will also look for hints as to just how much longer the Fed intends to hike rates in order to fight off inflation.

AvaTrade's Naeem Aslam said: "US and European futures are trading cautiously higher as traders do not want to get ahead of themselves. Many believe that the US stock markets and European stock markets do not reflect the underlying issues in terms of price. The reason is that they think that traders and investors are too optimistic in thinking that they are out of the woods. Threats of recession are real as they can be and companies in the current quarter have already confirmed their cautious approach in their guidance.

"We have only two days left for this month and generally speaking, market players believe that this month sets the tone for the rest of the year. So far, we have seen tremendous strength coming back for the US markets, but many in the market are in doubt about this rally as they believe that markets haven’t priced in the recession risk."

On the macro front, January's Dallas Federal Reserve manufacturing index will be published at 1530 GMT.

Reporting by Iain Gilbert at Sharecast.com