Asian stocks were set for a cautious start after losses in the US, with traders preparing for Chinese markets to reopen following a week-long holiday.

Futures showed Tokyo shares falling, with Hong Kong and Sydney benchmarks inching lower after Wall Street was dragged down by a tech selloff, geopolitical angst and bets on a smaller Federal Reserve rate cut. China-linked stocks could be in for a roller-coaster day, with a briefing by the nation’s top economic planner to be closely watched for more policy measures. A gauge of US-listed Chinese shares was flat overnight, while an index of mainland stocks listed in Hong Kong rose 2.2% on Monday.

The S&P 500 fell 1% after notching a four-week winning run. Alphabet Inc. sank 2.4% as a judge ruled it must lift restrictions that prevent developers from setting up rival marketplaces that compete with its Google Play Store. Brent crude jumped above $80 a barrel amid mounting tensions in the Middle East. In the wake of Friday’s solid jobs data, Treasuries continued to drop - with the 10-year yield topping 4%.

“Friday’s strong jobs report not only appeared to kill any chance of a 50-basis-point rate cut in November, it kickstarted chatter about the Fed leaving rates unchanged if economic data continues to come in hotter than expected,” said Chris Larkin at E*Trade from Morgan Stanley. “But as last week showed, geopolitics can’t be ignored.”

Attention will turn to the Chinese briefing from 10 a.m. local time where officials will discuss a package of policies aimed at boosting economic growth. The government unleashed a slew of stimulus measures before the holiday break, and Chinese shares have soared as the support reinvigorated investor confidence, with the Hang Seng China Enterprises Index jumping 11% since the Golden Week holiday kicked off.

Still, Invesco Ltd., JPMorgan Asset Management, HSBC Global Private Banking and Wealth, and Nomura Holdings Inc. are among those viewing the recent rebound with skepticism and waiting for Beijing to back up its stimulus pledges with real money. Some are also concerned many stocks are already reaching overvalued levels.

The crisis in the Middle East continues to unnerve investors, with fighting escalating Monday on multiple fronts after a year of war. The Israel Defense Forces said it intercepted most of a barrage of rockets fired toward Tel Aviv by Hamas and other Iran-backed groups. Brent crude soared to its highest price since August as speculation increased that Israel may attack Iran’s oil infrastructure. West Texas Intermediate crude edged higher early Tuesday.

To Dave Sekera at Morningstar, if there is any further geopolitical escalation, that would potentially spur the risk-off trade - with growth shares underperforming value ones.

“Typically, in a risk-off trade, you’re going to see rotation into defense stocks, but I’d be careful if you’re an investor today,” he said. “Some of the defensive sectors today are already overvalued. Unlike a typical risk-off trade, I think oil stocks would go up.”

With the exception of energy shares, every major sector in the S&P 500 dropped Monday. A gauge of the “Magnificent Seven” megacaps slipped 1.9%. Amazon.com Inc. sank 3.1% after Wells Fargo Securities downgraded the shares. Apple Inc. slid 2.3% as a Jefferies analyst said investors have overly optimistic expectations for the latest iPhones. Nvidia Corp. gained.

Wall Street’s favorite volatility gauge - the VIX - jumped to a two-month high. Treasury 10-year yields rose six basis points to 4.03%.

Despite the drop in stocks, two of Wall Street’s top strategists have turned more optimistic on signs of a robust labor market, economic resilience and easing interest rates.

Morgan Stanley’s Michael Wilson raised his view on so-called cyclical stocks relative to safer defensive peers, noting Friday’s blowout payrolls data and expectations of more cuts from the Fed. His peer at Goldman Sachs Group Inc., David Kostin, upgraded his 12-month target for the benchmark to 6,300 points from 6,000. The gauge closed at 5,695.94 Monday.

Strategists at BlackRock Investment Institute are reiterating their overweight to US equities and urging to lean into risk, citing cooling inflation and falling interest rates.

“The increasing probability that US economic performance will continue to be ‘hot’ going into 2025 and that the Fed will tolerate this heat, provided inflation isn’t reaccelerating, bodes well for risk assets,” said Jason Draho at UBS Global Wealth Management.

Some of the main moves in markets:

  - Bloomberg