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Cboe Volatility index hits over one-month high

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Pfizer ( PFE ) gains on report Starboard Value takes $1 bln stake

in co

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Oil stocks track crude prices higher

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Futures down: Dow 0.37%, S&P 500 0.38%, Nasdaq 0.49%

By Lisa Pauline Mattackal and Pranav Kashyap

Oct 7 (Reuters) - U.S. stock indexes were on track to

open lower on Monday as investors recalibrated their

expectations for the Federal Reserve rate cuts this year, while

exercising caution amid heightened geopolitical tensions and

ahead of key inflation data, policymaker comments and

third-quarter earnings.

Investors are pricing in an over 88% chance of a 25 basis point

rate cut at the Fed meeting in November, according to the CME's

FedWatch tool. Just a week ago, markets were hopeful of a

second, outsized 50 basis point reduction.

However, a bumper September non-farm payrolls report last

Friday pointed to a still-robust jobs market, helping the Dow

Jones Industrial Index notch a record closing high.

U.S. Treasury yields rallied as investors reassesed the

Fed's rate path, with the yield on benchmark 10-year notes

exceeding 4% for the first time in two months.

The rise in yields pressured rate-sensitive megacap growth

stocks. Alphabet fell 0.5% and Microsoft ( MSFT ) 0.4%

in premarket trading.

Apple ( AAPL ) lost 0.9% after Jefferies assumed coverage with a

"hold" rating, while Amazon ( AMZN ) lost 1.5%, pressured by a

Wells Fargo downgrade to "equal weight."

Escalating geopolitical tensions in the Middle East after

Hezbollah rockets hit Israel's third-largest city of Haifa early

on Monday, also kept investors on the sidelines.

The CBOE Volatility index, Wall Street's fear gauge,

rose as high as 21.45, at its highest level in over one month.

But crude prices extended gains on concerns about supply

disruptions from the Middle East conflict, boosting shares of

oil companies. Exxon Mobil ( XOM ) and Marathon Oil ( MRO ) rose

over 1%.

"(The) concerns that would keep people on the sidelines have to

do with higher energy prices in the near term, (the) impact of

that inflation and that yields which have been falling

precipitously (have) now firmed up," said Art Hogan, chief

market strategist at B Riley Wealth.

Among other movers, shares of Pfizer ( PFE ) rose 2.5% after a

report that activist investor Starboard Value has taken a

roughly $1 billion stake in the drug giant.

U.S. S&P 500 E-minis were down 21.75 points, or

0.38%, Nasdaq 100 E-minis were down 99.75 points, or

0.49%, Dow E-minis were down 156 points, or 0.37%

Futures for the small-cap Russell 2000 index

slipped 0.3%.

While markets continue to fine tune its expectations for

interest rate cuts, most market watchers remain optimistic about

the underlying strength of the economy and outlook for

equities.

Goldman Sachs raised its 2024 year-end S&P 500 target to

6,000 from 5,600, and also lowered its odds of a U.S. economic

recession to 15% from 20%.

The consumer price index data, this week's most closely

watched data, is due on Thursday.

Several Fed officials are also slated to speak this week,

with comments expected from Michelle Bowman, Neel Kashkari,

Raphael Bostic and Alberto Musalem later on Monday.

Third-quarter earnings for S&P 500 companies also begin this

week, with several major banks scheduled to report on Oct. 11.

Earnings will be a significant test for Wall Street's rally

this year - the S&P 500 is up about 20% year-to-date and stands

near record highs.

(Reporting by Lisa Mattackal and Pranav Kashyap in Bengaluru;

Editing by Shinjini Ganguli)