(Reuters) – U.S. stock index futures rose flat to slightly on Monday as caution prevailed ahead of a key monetary policy decision by the Federal Reserve later in the week, with investors pricing in a sharp cut in borrowing costs.
Since Fed Chairman Jerome Powell hinted at an impending rate cut late last year, markets have been on a tear, with the S&P 500 and the Dow Jones now near record highs.
However, after a mixed set of economic data and comments from a former policymaker in recent weeks, traders have changed their expectations about the decision the central bank will make at its Sept. 17-18 meeting.
The odds of a 50 basis point cut are 59%, up from 30% a week ago, according to the CME FedWatch Tool, which showed a 41% probability of a 25 basis point cut. There are concerns that an outsized move could mean the Fed sees the economy cooling faster.
“Just as important as the 25 vs 50 debate will be the Fed’s communication. Would a 50bps be the start of 50s or a one-off larger move to kick off the cycle? Would a 25bps mean the bar is set high for the next 50s? There will be a lot to digest,” a group of Deutsche Bank strategists led by Jim Reid said in a note.
The benchmark index and the technology-focused Nasdaq posted their biggest weekly jump in about 11 months on Friday, though analysts attributed the optimism to signs of a robust economy rather than expectations of rate cuts.
At 5:32 a.m., the Dow E-minis were up 95 points, or 0.23%, the S&P 500 E-minis were up 6.5 points, or 0.12%, and the Nasdaq 100 E-minis were down 4.5 points, or 0.02%.
Futures tracking small caps, which typically benefit from lower borrowing costs, outperformed, rising 0.90%.
The coming week will see a light release of economic data, including figures on retail sales, weekly jobless claims, new housing construction and industrial production.
Interest rate-sensitive growth stocks such as Nvidia fell 0.40%, while Meta rose 0.30% and Tesla rose 0.60% in pre-market trading.
Intel Corp rose 3.7% after a report showed the chipmaker was officially eligible for as much as $3.5 billion in federal subsidies to make semiconductors for the U.S. Defense Department.
Trump Media & Technology rose 4.5% after a suspected second assassination attempt on the Republican candidate and former president on Sunday, just weeks ahead of the closely watched US presidential election.
Crypto stocks showed a downward trend with Microstrategy down 2% and Riot Platforms losing 1.4%, corresponding to a 1.7% drop in bitcoin prices.
(Reporting by Johann M Cherian in Bengaluru; Editing by Pooja Desai)
