Federal Reserve's Monetary Stance Moves Markets

U.S. stock index futures dipped on Friday following a rally that put Wall Street’s indexes on track for weekly gains, driven by a pivotal change in the Federal Reserve's monetary policy. While the rally saw significant milestones, investors now focus on economic projections and potential volatility from 'triple witching'.

On Friday, U.S. stock index futures edged lower, taking a pause from a previous rally that put Wall Street's main indexes on track for weekly gains. This was spurred by a pivotal shift in the Federal Reserve's stance on monetary policy earlier in the week.

The S&P 500 secured its eighth gain in nine sessions, closing at an all-time high and surpassing its mid-July record. The Dow ended above the 42,000-point psychological level, hitting a record high as well. Along with the tech-heavy Nasdaq, the indexes are poised for weekly gains exceeding 1%. Against historical trends, the S&P 500 is also up over 1% for September so far.

At 5:43 a.m. ET, Dow E-minis fell by 12 points (0.03%), S&P 500 E-minis dropped by 14 points (0.24%), and Nasdaq 100 E-minis decreased by 75 points (0.37%). Earlier, risk appetite was boosted by the Fed kicking off its easing cycle with a significant, yet expected, 50-basis-point cut, assuring more cuts to follow. The central bank projected a period of steady economic growth coupled with low unemployment and inflation rates.

With economic data being scant, investors will tune into Philadelphia Fed President Patrick Harker's remarks for insights on the central bank's policy and economic outlook. CME Group's FedWatch tool indicates a 59.1% probability of a 25 bps cut in November, with expectations that rates will drop by 72 bps by year's end, according to LSEG data.

Investors also brace for volatility due to 'triple witching', an event marked by the expiration of options and futures linked to stock indexes, futures, and single stocks. FedEx shares dropped 13% after posting a sharp quarterly profit decline and lowering its full-year revenue forecast. United Parcel Service slipped by 2.4%. Nike surged 6.9% after announcing that Elliott Hill will return to succeed John Donahoe as president and CEO. Rebalancing of main indexes is also anticipated, with Dell and Palantir Technologies, which dipped respectively by 0.7% and 2.4%, set to join the S&P 500 on September 23.

Globally, investors are assessing whether the U.S. economy is poised for a boom or recession. Central banks in the UK and Japan adopted a cautious stance on interest rates following the Fed's decision. Historically, equities perform well during rate-cutting cycles due to lower borrowing costs easing corporate profit pressures. However, the high valuations of the S&P 500 above its long-term average cast a shadow over the outlook.

(With inputs from agencies.)