The major U.S. index futures are currently pointing to a higher open on Tuesday, with stocks likely to add to the strong gains posted in the previous session.
Traders may continue to pick up stocks at somewhat reduced levels, as the major averages remain well off their recent highs even after yesterday’s rally.
Optimism about the outlook for interest rates may also generate continued buying interest ahead of the Federal Reserve’s monetary policy meeting next week.
The Fed is almost universally expected to begin lowering interest rates but there is some debate about the size of the rate cut.
CME Group’s FedWatch Tool is currently indicating a 73 percent chance the Fed will lower rates by 25 basis points and a 27 percent chance of a 50 basis point rate cut.
Overall trading activity may be somewhat subdued, however, as traders look ahead to the release of closely watched inflation data in the coming days.
The Labor Department is scheduled to release reports on consumer and producer price inflation in the month of August on Wednesday and Thursday, respectively.
The reports are expected to show slowdowns by the rates of consumer and producer price growth compared to the same month a year ago.
Following the sell-off seen in the previous week, stocks showed a strong move back to the upside during trading on Monday. The major averages all moved sharply higher over the course of the session.
The major averages pulled back off their highs of the session in afternoon trading but remained firmly positive. The Dow surged 484.18 points or 1.2 percent to 40,829.59, the Nasdaq jumped 193.77 points or 1.2 percent to 16,884.60 and the S&P 500 shot up 62.63 points or 1.2 percent to 5,471.05.
The rally on Wall Street came as traders looked to pick up stocks at somewhat reduced levels following the steep drop seen last week, which dragged the Nasdaq down to its lowest levels in nearly a month.
Optimism the Fed will lower interest rates later this month also contributed to the strength on Wall Street despite lingering concerns about the outlook for the U.S. economy.
Airline stocks saw substantial strength on the day, with the NYSE Arca Airline Index soaring by 2.3 percent to its best closing level in over a month.
JetBlue (NASDAQ:JBLU) helped lead the sector higher, spiking by 7.2 percent after Bank of America upgraded its rating on the airline’s stock to Neutral from Underperform.
Significant strength was also visible among semiconductor stocks, as reflected by the 2.2 percent jump by the Philadelphia Semiconductor Index. The index rebounded after ending last Friday’s trading at a one-month closing low.
Networking, banking and computer hardware stocks also saw notable strength on the day, moving higher along with most of the other major sectors.