(Reuters) – U.S. stock index futures rallied on Tuesday as Federal Reserve officials signaled a dovish interest rate stance and investors searched for bargains after the previous session’s rout.
Most mega-cap and growth stocks, which collectively lost $200 billion in market value on Monday, rose in premarket trading, with Nvidia rising 1.7%.
Both the S&P 500 and the Nasdaq Composite posted losses of at least 3% on Monday as weak economic data raised concerns about a U.S. recession and unwinding of tight positions in carry trades that fund high-yield assets.
Federal Reserve policymakers on Monday pushed back against the idea that weaker-than-expected July employment numbers mean the economy is in recessionary freefall, but warned that the Federal Reserve would have to cut interest rates to avoid such an outcome.
“We believe the strength of household and corporate balance sheets suggests a recession is unlikely, but risks are mounting. If economic data continues to deteriorate, the Fed is well-positioned to respond aggressively,” said Seema Shah, chief global strategist at Principal Asset Management.
According to the CME’s FedWatch Tool, traders currently estimate a 75% chance that the Fed will cut rates by 50 basis points in September, down from 98% on Monday. They expect rates to end the year in the range of 4.25%-4.50%, according to the tool.
Major brokerages including JP Morgan, Citigroup and Wells Fargo are predicting the US central bank will cut interest rates by 50 basis points in September, following a surprisingly weak US jobs report for July.
A closely watched gap between the two-year and 10-year benchmark yields turned positive on Monday, typically a sign that the economy is entering a recession.
The CBOE Volatility index, also known as Wall Street’s “fear gauge,” was at 33.15 points after hitting a high of 65.73 on Monday.
At 5:16 a.m. ET, the Dow E-minis were up 85 points, or 0.22%, the S&P 500 E-minis were up 19.5 points, or 0.37%, and the Nasdaq 100 E-minis were up 59.75 points, or 0.33%.
Palantir Technologies, among others, grew by 7.5% after the software services provider raised its annual revenue and profit forecast for the second time this year.
CrowdStrike rose 2.9% after investment firm Piper Sandler raised its rating to overweight from “neutral.”
(Reporting by Shubham Batra in Bengaluru; Editing by Saumyadeb Chakrabarty)
