The U.S. stock index futures saw a slight rise on Wednesday evening, following positive momentum on Wall Street upon the release of data showing a cooling in consumer inflation during July. This development raised expectations for a reduction in interest rates by the Federal Reserve. The softer-than-expected inflation readings this week have fueled speculations that the Fed will start cutting rates from September onwards.
S&P 500 Futures saw a 0.1% increase to 5,479.75 points, while Nasdaq 100 Futures also rose 0.1% to 19,133.0 points by 19:20 ET (23:20 GMT). Dow Jones Futures mirrored the trend, rising 0.1% to 40,152.0 points. The recent readings on Consumer Price Index (CPI) and Producer Price Index have revealed a cooling in inflation, although the pace remains staggered.
Impact of Lower Rates
The CPI dropped more than anticipated to a 2.9% annual rate in July, with a 0.3% month-on-month growth. These readings have boosted expectations for an interest rate cut in September. The market sentiment is leaning towards a 25 basis point reduction, as indicated by CME Fedwatch, compared to earlier predictions of a 50 bps cut. Lower interest rates tend to positively impact stock markets by freeing up liquidity for investment in different sectors. Moreover, economic growth typically improves under lower rates, providing a further boost to investor confidence.
Wall Street indexes surged to two-week highs on Wednesday, continuing a rebound from the previous week as concerns about a U.S. recession subsided, leading to reduced market volatility. The S&P 500 climbed 0.4% to 5,455.21 points, and the NASDAQ Composite edged up to 17,189.05 points. The Dow Jones Industrial Average also saw a 0.6% increase to 40,008.39 points. The shift in market sentiment towards expecting lower rates prompted a flow of investments out of heavyweight technology stocks and towards more economically sensitive sectors, with value stocks experiencing heightened inflows.
As investors await the industrial production and retail sales readings scheduled for Thursday, these upcoming reports are anticipated to provide further insights into the state of the economy. The expectations for lower interest rates have set a positive tone for the markets, which have responded favorably to the recent data indicating a cooling in inflation. The gradual easing of inflation pressures indicates a potential pathway for the Federal Reserve to initiate rate cuts, which in turn could stimulate economic growth and bolster investor confidence in the coming months.