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US stock index futures rose on Tuesday as markets awaited the release of key inflation data this week, which will signal the Federal Reserve’s future monetary policy.
Nasdaq Futures (NDX:IND) +0.3%S&P 500 futures (SPX) +0.2%Dow Futures (INDU) +0.1%.
The markets are pricing in a 25 basis point interest rate hike in May, according to federal funds futures, followed by a pause at the June meeting.
Investors are also watching banks’ quarterly results later this week, which will be the first earnings reports issued after the recent banking crisis.
“We believe that recent stock market gains reflect expectations that the Fed will blink at the first signs of real weakness, inflation will remain significantly above target, and the economy will slide lower for a soft landing,” said Chris Senyek, an analyst at Wolfe Research. “Unfortunately, we do not share the enthusiasm of the consensus. Rather, we believe that the Fed is trying to walk a fine line between reducing inflation, not triggering a recession, and avoiding severe stress in the financial market.”
The 10-year Treasury yield (US10Y) fell 2 basis points to 3.40%, while the 2-year yield (US2Y) fell 3 basis points to 3.97%.
“Absent some sort of massive runaway bank failure in the next three weeks, the Fed will go higher again, and if the inflation data is bad, they’ll go higher,” said Logan Kane, a contributor to SA. “They’ve said this repeatedly, the market just doesn’t respect them, so they’ve built on pivot bets over and over again since early 2022 despite worsening fundamentals.”
On the economic calendar, NFIB’s small business optimism dipped marginally in March.
Among active stocks, Hexo tumbled after Tilray Brands (TLRY) confirmed its acquisition at a significant discount, while Tilray fell after posting a third-quarter revenue loss.