Stocks Edge Higher Ahead of Fed Meeting

U.S. stock index futures rose ahead of the Federal Reserve's monetary policy meeting, with investors anticipating a potential 50-basis-point rate cut. Financial and energy stocks have boosted the S&P 500 and Dow to record highs, while Nasdaq faced pressure. Reports on industrial production and retail sales are expected before the Fed meeting.

U.S. stock index futures inched higher on Tuesday as investors awaited a set of crucial economic reports and held onto hopes of a half-percentage-point rate cut at the Federal Reserve's monetary policy meeting, set to begin later today.

The S&P 500 ended its sixth consecutive session in positive territory, nearing a record high on Monday, buoyed by financial and energy stocks. The Dow also closed at a record high. Conversely, the Nasdaq ended lower as investors rotated away from technology stocks, the primary drivers of this year's market rally.

Microsoft saw a 1.60% increase in premarket trading after announcing a $60-billion share buyback program and a 10% hike in its quarterly dividend. Other growth stocks like Alphabet, Meta, and Nvidia also experienced gains. Treasury bond yields remained high, reflecting cautious investor sentiment.

At 07:09 a.m. ET, Dow E-minis were up 85 points (0.20%), S&P 500 E-minis were up 15.25 points (0.27%), and Nasdaq 100 E-minis were up 87 points (0.45%). Key reports on industrial production and retail sales for August, potentially among the final data sets before the Fed's two-day meeting, are expected to be released throughout the day.

According to the CME Group's FedWatch Tool, traders are betting on a 65% chance that the Federal Reserve will opt to cut borrowing costs by 50 basis points. The probability of a smaller 25 bps cut has dropped to 35% from 66% as of a week ago, due to encouraging remarks from a former Fed policymaker and signs of a cooling labor market, among other factors.

A 50-basis-point cut, accompanied by a calm and cautious message, could give the Fed a head start without alarming the markets, portfolio manager Gabriele Foà of Algebris Investments noted. A smaller cut may necessitate a more dovish approach to meet market expectations.

Historically, September has been a weak month for U.S. equities, with the S&P 500 typically down about 1.20% on average since 1928. The index has lost approximately 0.30% so far this month. Nevertheless, a Bank of America survey indicated improved global investor sentiment in September 2024, boosted by optimism surrounding a potential soft landing and rate cuts by the Federal Reserve.

Among notable stock movers, Intel surged 7.0% after Amazon.com's cloud services unit signed on to have custom AI chips made. Viasat fell 4.2% following a downgrade from J.P.Morgan. Hewlett Packard Enterprise rose 3.4% after an upgrade from BofA Global Research. Conversely, SolarEdge plummeted 6.6% after Jefferies downgraded the stock and cut its price target to the lowest on Wall Street.

(With inputs from agencies.)