U.S. stock index futures saw a slight uptick on Tuesday as investors braced for key economic reports and anticipated a significant half-percentage-point rate cut from the Federal Reserve during its two-day policy meeting, which commenced today.
The S&P 500 closed at a record high following six consecutive sessions of gains, buoyed by strength in Financial and Energy sectors, while the Dow also reached an all-time high. In contrast, the Nasdaq composite slipped as investors rotated out of technology stocks that have dominated the market rally this year.
In premarket trading, Microsoft experienced a 1.60% rise after its board authorized a substantial $60 billion share buyback program and increased its quarterly dividend by 10%. Growth stocks such as Alphabet and Meta ticked up by 0.50% and 0.36%, respectively, while Nvidia climbed 0.81%. The yield on two-year Treasury bonds remained around its highest point in over a year.
As of 07:09 a.m. ET, the Dow E-minis gained 85 points, or 0.20%, the S&P 500 E-minis rose by 15.25 points, or 0.27%, and the Nasdaq 100 E-minis saw an increase of 87 points, or 0.45%.
Data reports on industrial production and retail sales for August are anticipated throughout the day, forming a crucial backdrop before the Fed’s pivotal meeting. Futures traders estimate a 65% likelihood that the Fed will implement a more aggressive 50-basis-point rate cut, as indicated by the CME Group’s FedWatch Tool, while the chances for a smaller 25-point reduction have diminished to 35% from 66% just a week ago. Investor sentiment has shifted in light of comments from a former Fed official advocating for a more substantial cut and evidence suggesting a cooling labor market.
According to Gabriele Foà, a portfolio manager at Algebris Investments, initiating with a 50-basis-point cut paired with a steady, cautious approach could provide the Fed with a solid start without rattling investors. In contrast, Foà warned that beginning with a 25-point move would need a more dovish tone to align with market expectations for the remainder of the year.
Historically, September has been a challenging month for U.S. equities, with the S&P 500 averaging a decline of about 1.20% since 1928. The index has dipped roughly 0.30% this September. On a positive note, a recent Bank of America survey indicated an uptick in global investor sentiment for the first time since June, driven by optimism about a soft economic landing and anticipated Federal Reserve rate cuts.
In notable market movements, Intel stock surged 7.0% after it partnered with Amazon’s cloud division to produce custom AI chips. Conversely, Viasat experienced a 4.2% drop following a downgrade from J.P. Morgan, which shifted its recommendation from “overweight” to “neutral.” Hewlett Packard Enterprise saw a 3.4% gain thanks to a “buy” upgrade from Bank of America Global Research, while SolarEdge fell 6.6% after Jefferies reduced its rating from “hold” to “underperform” and slashed its price target.
As traders continue to monitor these developments, the performance of the stock market remains closely tied to updates from the Fed and economic data releases, shaping the outlook as we approach the end of Q3 2024.