A trader works as a screen broadcasts a press conference by Federal Reserve Chairman Jerome Powell after the Fed’s rate announcement on the floor of the New York Stock Exchange on June 12, 2024.
Brendan McDermid | Reuters
Stock futures were flat in overnight trading Tuesday as Wall Street anticipated a long-awaited rate cut from the Federal Reserve, following an aggressive multi-year hike aimed at curbing inflation.
Futures contracts linked to the Dow Jones Industrial Average added 37 points, while S&P 500 Futures Contracts hovered near the flat line. Futures contracts linked to the Nasdaq-100 increased by about 0.1%.
Wall Street is coming out of a mixed session which saw the S&P 500 up 0.03% after hitting a new all-time high in intraday trading. Dow Jones Industrial Average lost almost 16 points, while the Nasdaq Composite Index added 0.2%.
Investors remain on high alert ahead of the Fed’s expected first rate cut at its two-day policy meeting on Wednesday. This month’s meeting is shaping up to be one of the most crucial meetings in years as the Fed prepares to end its aggressive rate hike cycle that began in March 2022.
Rate cuts are typically beneficial for corporate earnings growth and provide a welcome respite from a prolonged period of high borrowing costs and persistent inflation. The rate-cutting cycle could also provide additional gains for an already strong market, with the S&P 500 up 18% this year. Data from Canaccord Genuity shows that since 1974, the index has gained an average of 6.4%, 9.8% and 15.6% in the three, six and 12 months following an initial cut, respectively.
Although a rate cut appears imminent, traders are divided on the magnitude of the measure. CME Group’s FedWatch tool shows that traders anticipate a 63% chance of a 50 basis point cut and a 37% chance of a 25 basis point cut.
Despite these market expectations, some investors remain cautious about cutting rates too far too soon. Peter Cecchini, director of research at Axonic Capital, called a 50-basis-point cut, the first step in a Fed tapering cycle, “unusual” given the current state of the housing market.
“This is not really the context in which I think the Fed needs to do a 50 basis point cut preemptively, when historically they have never done that,” he said on CNBC’s “Closing Bell” Tuesday.
