The US stock market is gearing up for a positive start on Tuesday, fueled by anticipation surrounding the Federal Reserve’s upcoming interest rate decision and the release of key economic data, particularly the August retail sales report. Investors are eager to capitalize on the recent market pullback, particularly in the tech sector.
While the market is expecting a rate cut, there’s considerable debate about its magnitude. Some experts believe a 25 basis-point cut could trigger a temporary negative reaction, but the overall sentiment remains optimistic. Most analysts agree that the health of the labor market and the overall state of the economy will take precedence over the rate trajectory in the long run.
The August retail sales figures are expected to be a key focus for traders on Tuesday. Fund manager Louis Navellier believes a disappointing report could push the Fed towards a more significant rate cut on Wednesday. Wharton professor and Wisdom Tree Senior Economist Jeremy Siegel also advocates for a swift move by the Fed. However, the market seems content with the Fed funds rate reaching the three-handle by mid-2024.
Futures markets are already reflecting this optimism, with the Nasdaq 100, S&P 500, and Dow Jones Industrial Average futures trading higher in premarket trading. The SPDR S&P 500 ETF Trust (SPY) and the Invesco QQQ ETF (QQQ) have also shown gains.
The previous trading session saw a mixed performance on Wall Street, with the Nasdaq Composite dipping lower due to weakness in tech giant Apple, while the S&P 500 and Dow Industrials closed in the green. The broader market’s positive close extended its winning streak to six sessions, driven by stronger-than-expected regional manufacturing data.
Analysts are expecting a more modest 0.25% rate cut despite market expectations for a larger 50 basis-point reduction. Morgan Stanley economist Seth Carpenter anticipates the Federal Open Market Committee (FOMC) statement to acknowledge progress on inflation and risks to the labor market. The dot-plot chart, which shows the Fed’s projections for interest rates, is likely to indicate three rate cuts this year instead of the previously suggested one.
Morgan Stanley’s Chief U.S. Equity Strategist Mike Wilson believes that labor and growth data will hold more weight in shaping the market’s direction in the coming months. If the data improves, a series of 25 basis-point cuts could further support valuations in a late-cycle environment. However, he warns that if labor data weakens, the market could trade with a risk-off tone, regardless of the Fed’s initial rate cut size.
Several key economic reports are scheduled for release on Tuesday, including the August retail sales report, the Federal Reserve’s industrial production report, and the Commerce Department’s business inventories report. These reports will provide valuable insights into the health of the US economy and could influence the Fed’s decision on Wednesday.
Intel Corp. (INTC) is seeing a premarket surge of over 6% after announcing a deal to supply custom artificial intelligence chips to Amazon.com Inc.’s (AMZN) AWS cloud computing platform. Meanwhile, Viasat Inc. (VSAT) is down over 5.60% following a negative analyst action. Microsoft Corp. (MSFT) has climbed over 1.50% after announcing a $60 billion stock buyback plan and a 10% dividend hike.
Commodities markets are seeing some pullback after Monday’s strong gains, with crude oil and gold futures trading lower. However, gold remains above the $2,600 mark despite the modest decline. The benchmark 10-year Treasury note has edged down slightly ahead of the Fed’s decision on Wednesday. Bitcoin is trading above the $59,000 mark.
Global markets are also showing a positive trend in anticipation of a Fed rate cut. Most major markets in Asia closed higher, although the Japanese market retreated amid the yen’s strength, and the New Zealand market extended losses after the central bank meeting. European stocks are trading higher in early trading.
