Futures slip on fading rate cut hopes; retailers’ earnings in focus

By Thomson Reuters Feb 20, 2024 | 4:58 AM

(Reuters) – U.S. stock index futures slipped on Tuesday as hopes for early interest rate cuts from the Federal Reserve waned, while investors geared up for quarterly earnings from U.S. retail giants including Walmart.

Last week’s hotter-than-expected U.S. inflation data dealt a blow to market expectations for an imminent start to the Fed’s easing cycle, halting a strong rally on Wall Street this year.

All three major indexes posted weekly declines on Friday after five straight weeks of gains, though the S&P 500 still closed above the 5,000 point mark.

“We still see equities higher between now and year-end, but the path is unlikely to be a straight line,” said Mohit Kumar, Jefferies’ chief economist for Europe, adding stock valuations look a bit stretched.

Nearly 79% of traders are pricing in a rate cut of at least 25 basis points in June, while bets of a cut in May stand at 37% compared with about 85% in mid-January, according to the CME Group’s FedWatch tool.

Additionally, China’s biggest ever reduction to its benchmark mortgage rate on Tuesday also failed to bolster investor confidence in its stock markets, pressuring broader risk sentiment.

As investors return following a long weekend, results from chip designer Nvidia will grab the spotlight after markets close on Wednesday and test market optimism around the potential for artificial intelligence.

Shares of Nvidia, now the third most valuable company on Wall Street, and Tesla fell about 2% each in premarket trading, underperforming other megacap stocks.

Walmart and Home Depot will kick off the earnings season for U.S. retailers before markets open on Tuesday. Walmart’s shares were up 1.5% before the bell.

Among individual stocks, Discover Financial Services surged 11.1% on Warren Buffett-backed consumer bank Capital One’s plans to acquire the U.S. credit card issuer in a $35.3 billion deal.

Investors are also awaiting the release of minutes from the Fed’s latest policy meeting as well as remarks from a slew of central bank officials later this week. The economic data calendar this week is light.

At 5:27 a.m. ET, Dow e-minis were down 73 points, or 0.19%, S&P 500 e-minis were down 18.75 points, or 0.37%, and Nasdaq 100 e-minis were down 108.75 points, or 0.61%.

Shares of Intel added 4.2% following a report on Friday that the Biden administration is in talks to award more than $10 billion in subsidies to the semiconductor firm.

(Reporting by Amruta Khandekar; Editing by Shinjini Ganguli)