The major U.S. index futures are currently pointing to a modestly higher open on Wednesday, with stocks likely to move to the upside after ending the previous session little changed.
Traders may be reluctant to make significant moves early in the session ahead of the Federal Reserve’s monetary policy decision this afternoon.
The Fed is due to announce its decision on interest rates at 2 pm ET, followed by Fed Chair Jerome Powell’s post-meeting press conference at 2:30 pm ET.
While the Fed is almost universally expected to lower rates, there continues to be some debate about the size of the rate cut.
CME Group’s FedWatch Tool is currently indicating a 65.0 percent chance of a half-point rate cut and a 35.0 percent chance of a quarter-point rate cut.
However, John Lynch, Chief Investment Officer for Comerica Wealth Management, said, “Though consensus is leaning toward a 50 basis point move, we look for the Fed to cut by 25 basis points today.”
“Inflation growth is not yet at the Fed’s target for price stability, the unemployment rate still hovers around 4.0%, and federal deficit spending continues to surge,” he added. “In this environment, we believe the more prudent policy action is to withstand market pressure and proceed slowly with a 1/4 point mover lower today.”
In U.S. economic news, a report released by the Commerce Department showed a substantial rebound by new residential construction in the U.S. in the month of August.
After moving mostly higher early in the session, stocks gave back ground over the course of the trading day on Tuesday. The Dow and the S&P 500 reached new record intraday highs in early trading but subsequently pulled back near the unchanged line.
The major averages ended the day narrowly mixed. While the Dow edged down 15.90 points or less than a tenth of a percent to 41,606.18, the S&P 500 inched up 1.49 points or less than a tenth of a percent to 5,634.58 and the Nasdaq rose 35.93 points or 0.2 percent to 17,628.06.
Optimism about the outlook for interest rates contributed to early strength on Wall Street, but buying interest waned over the course of the session.
Stocks ended the day little changed following the release of a Commerce Department report unexpectedly showing a modest increase by U.S. retail sales in the month of August.
The Commerce Department said retail sales inched up by 0.1 percent in August after surging by an upwardly revised 1.1 percent in July.
The uptick surprised economists, who had expected retail sales to dip by 0.2 percent compared to the 1.0 percent jump originally reported for the previous month.
While the data is positive for the economy, it was seen as reducing the likelihood the Federal Reserve will lower interest rates by 50 basis points when announcing its highly anticipated monetary policy decision later in the day.
“Despite a lot of concern about the health of the US consumer, the latest data shows resilience rather than the kind of weakness that would warrant a big opening gambit from the Fed,” said Danni Hewson, head of financial analysis at AJ Bell.
She added, “A 50 basis point cut might be perceived as worry, an indication that they’ve waited too long to change tack, whilst a slow and steady unwinding suggests control and is less likely to be viewed through a political lens.”
The Federal Reserve also released a separate report showing industrial production in the U.S. rebounded by much more than anticipated in the month of August.
Oil service stocks moved sharply higher along with the price of crude oil, resulting in a 3.2 percent spike by the Philadelphia Oil Service Index.
Significant strength was also visible among airline stocks, as reflected by the 2.5 percent surge by the NYSE Arca Airline Index. The index ended the session at its best closing level in two months.
Oil producer and computer hardware stocks also saw notable strength on the day, while pharmaceutical stocks came under pressure, dragging the NYSE Arca Pharmaceutical Index down by 1.3 percent.