A trader works, as a screen broadcasts a news conference by Federal Reserve Chair Jerome Powell following the Fed rate announcement on the floor of the New York Stock Exchange in New York City, 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 hiking campaign aimed at tamping down hot inflation.
Futures tied to the Dow Jones Industrial Average added 15 points, while S&P 500 futures hovered near the flatline. Futures tied to the Nasdaq-100 edged up 0.05%.
Wall Street is coming off a mixed session that saw the S&P 500 edge up 0.03% after notching another all-time high during intraday trading. The Dow Jones Industrial Average lost nearly 16 points, while the Nasdaq Composite added 0.2%.
Investors remain on high alert ahead of the first expected rate cut from the Fed at the conclusion of its two-day policy meeting Wednesday. This month’s gathering registers as one of the most critical meetings in years as the Fed readies to unwind its cycle of aggressive hikes, which started in March 2022.
Rate cuts generally benefit companies’ earnings growth and will usher in a welcome reprieve following a prolonged period of high borrowing costs and sticky inflation. The cutting cycle may also yield more gains for an already-strong market on a record-setting streak, with the S&P 500 already up 18% this year. Data from Canaccord Genuity shows that since 1974 the index has rallied an average of 6.4%, 9.8% and 15.6% in the three, six and 12 months following an initial cut.
Although a cut appears imminent, traders are divided over the magnitude of the move. CME Group’s FedWatch tool shows trader pricing in a 63% chance of a 50 basis point cut, and 37% odds of 25 basis point move.
Despite these market expectations, some investors remain cautious about cutting rates too much, too soon. Peter Cecchini, Axonic Capital’s director of research, called a 50 basis point cut “unusual” as the first move in a cutting cycle from the Fed given the current state of the housing market.
“This is not really the environment where I think the Fed needs to do a 50 basis point cut as a preemptive measure, when historically it’s never done so,” he told CNBC’s “Closing Bell” on Tuesday.
