S&P 500, Nasdaq set to open at record highs on September rate cut hopes
Signs that U.S. taxes on imports have not fully filtered into headline consumer prices sparked a relief rally on Wall Street in the previous session, with the benchmark S&P 500 (.SPX), opens new tab marking its first record high close in two weeks.
Despite core inflation marking its biggest jump since the start of the year, investors factored in recent weakness in the job market and a shake-up at the Federal Reserve as they leaned in favor of a potential dovish move by the central bank in September.
Interest rate futures now reflect a 97.3% chance of a 25 basis points interest rate cut, according to data compiled by LSEG, compared with 88.8% on Tuesday. The central bank last lowered borrowing costs in December.
"A benign CPI report, coming on the heels of weak non-farm payrolls, has strengthened the case for a September Fed cut," said Nikos Tzabouras, senior market analyst at Tradu.com.
"However, market euphoria could be challenged as stagflation risks persist, potentially eroding consumption and hurting advertising - a key revenue stream for many tech giants."
At 8:34 a.m. ET, Dow E-minis were up 132 points, or 0.30%, S&P 500 E-minis were up 15.25 points, or 0.24% and Nasdaq 100 E-minis were up 73.25 points, or 0.31%.
The CBOE volatility index (.VIX), opens new tab, popularly referred to as Wall Street's fear gauge, dropped to 14.46 - its lowest since January.
Rate-sensitive banking stocks such as Bank of America (BAC.N), opens new tab and Citigroup (C.N), opens new tab were marginally higher in premarket trading after the broader sector (.SPXBK), opens new tab logged its biggest daily rise in three months on Tuesday.
Analysts said a steepening yield curve following the inflation report could help bank earnings as lenders could borrow cheap and lend at a higher rate.
Later in the day, investors will scrutinize remarks of a number of policymakers, especially Chicago Fed President Austan Goolsbee - a Federal Open Market Committee voting member this year.
Earnings are also in focus. CoreWeave (CRWV.O), opens new tab, which is backed by Nvidia (NVDA.O), opens new tab, lost 9.6% after the AI data center operator reported a bigger-than-expected quarterly net loss.
Eyes are also on developments surrounding the China revenue-sharing deal the U.S. government signed with chipmakers like Nvidia and Advanced Micro Devices (AMD.O), opens new tab, which the White House said could be expanded to others in the sector.
Eli Lilly (LLY.N), opens new tab rose 1.2% after the drugmaker launched the easy-to-use injector pen of its blockbuster weight-loss drug, Mounjaro, in India.
Venture Global (VG.N), opens new tab gained 12.6% after the LNG major won a legal battle against Shell (SHEL.L), opens new tab over its failure to deliver liquefied natural gas under long-term contracts starting in 2023.
Crude prices traded around $60 per barrel ahead of a virtual meeting between Donald Trump and European leaders on the Russo-Ukraine conflict, two days before the U.S. president meets Russian President Vladimir Putin.
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