By Johann M Cherian

(Reuters) – U.S. stock index futures fell on Tuesday as disappointing earnings and forecasts from bellwethers including Caterpillar, McDonald’s and Pfizer set the tone for the busiest earnings week this season, ahead of the outcome of the Federal Reserve’s rate-setting meeting.

Fourth-quarter earnings season took center stage, with Caterpillar Inc down 2.6%, as the heavy equipment maker reported a drop in quarterly profit on higher manufacturing costs. 

McDonald’s Corp beat Wall Street estimates for quarterly comparable sales, but the fast-food chain’s shares fell 1.0% as it warned of short-term inflationary pressures.

Pfizer Inc slid 3.2% after the drugmaker’s full-year revenue outlook for its COVID-19 products fell short of expectations.

Wall Street started the year on a strong footing and is set to end January higher, with the Nasdaq up nearly 9% as growth stocks attracted investor attention earlier in the month.

The resilience in momentum stocks will be put to the test on Wednesday after the Federal Reserve unveils its plan to deal with inflation this year.

Higher rates tend to particularly pressure the valuations of tech and other high growth stocks. 

Traders are betting on a 25-basis-points hike (bps) at the end of the U.S. central bank’s two-day meeting, and a terminal rate of 4.9% in June.

U.S. chipmakers, including Micron Technology Inc and Western Digital Corp fell 4.4% and 2.5%, respectively.

Samsung Electronics Co Ltd stoked fears of pulling away market share from rivals after it indicated it had no plans to cut investments in chips, even as rivals lower spending amid a tough macro environment.

As many as 140 S&P 500 companies had reported earnings for the fourth-quarter by Monday. Earnings are expected to have fallen 3% this quarter compared with the prior-year, according to Refinitiv data.

At 7:20 a.m. ET, Dow e-minis were down 111 points, or 0.33%, S&P 500 e-minis were down 11 points, or 0.27%, and Nasdaq 100 e-minis were down 50.25 points, or 0.42%.

(This story has been corrected to say Caterpillar reported a drop in quarterly profit, not missed analysts’ estimates, in paragraph 2)

(Reporting by Johann M Cherian and Shreyashi Sanyal in Bengaluru; Editing by Vinay Dwivedi)