Fed Fends Off Major Rate Cuts; U.S. Stock Futures Unsettled

U.S. stock index futures dipped slightly as investors awaited key labor market data following Federal Reserve Chair Jerome Powell's comments on possible interest rate cuts. Traders anticipate a 25 bps rate cut in November. Labor market reports and central bank policymakers’ comments remain crucial for market direction.

On Tuesday, U.S. stock index futures declined marginally as investors braced for critical labor market data. This comes a day after Federal Reserve Chair Jerome Powell calmed expectations for significant interest rate cuts.

Addressing an economics conference on Monday, Powell affirmed that the central bank is likely to slash borrowing costs by another 50 basis points by year-end, underpinned by strong consumer spending and gross domestic income data. However, traders were uncertain about the scale of the Fed's next move. Current betting favors a 25 basis-point cut in November, with probabilities standing at 62.7%, up from 41.8% last week, according to the CME Group's FedWatch Tool.

As inflation edges closer to the Fed's 2% target, attention shifts to labor market performance with the Fed's monetary policy easing initiated in September. Key indicators such as August's job openings and labor turnover survey (JOLTS) and the Institute for Supply Management's final manufacturing activity estimate for September are awaited with bated breath.

Rabobank analysts noted in a report, "With Powell believing inflation is under control, surprising employment data could still alter the Fed's plans. For example, severely weak employment growth or a spike in unemployment could kindle a 50 basis-point cut by the FOMC."

As of 5:34 a.m. ET, Dow E-minis were down 111 points or 0.26%, S&P 500 E-minis declined by 5.25 points or 0.09%, while Nasdaq 100 E-minis edged up by 15 points or 0.07%. Insights from policymakers like Atlanta Fed's Raphael Bostic, Richmond's Thomas Barkin, Boston's Susan Collins, and Governor Lisa Cook are eagerly anticipated for economic and monetary policy cues.

A notable divergence saw Wall Street's three principal indexes closing September in positive territory, a departure from the usual weak performance during the month. The S&P 500 and Dow both registered their fifth consecutive monthly gains, nearing record highs in the previous session. Additionally, markets watched a port strike affecting the East and Gulf Coasts, disrupting about half of the nation's ocean shipping. Shares of Designer Brands, Costco, Walmart, and CH Robinson remained stable in premarket dealings.

CVS Health surged 2.3% following reports that the company is weighing options including a potential split of its retail and insurance units. Meanwhile, Tesla's stock remained flat in anticipation of reporting third-quarter deliveries on Wednesday, with analysts forecasting an 8% annual rise.

(With inputs from agencies.)