S&P and Nasdaq set to open higher as decreasing inflation boosts expectations for rate cuts

The S&P 500 and the Nasdaq were poised to open slightly higher on Monday following the release of the latest inflation data, which showed moderating consumer prices. This news has bolstered hopes of an early interest rate cut by the Federal Reserve.

According to the Commerce Department’s data, the personal consumption expenditures (PCE) price index, which is the Fed’s preferred inflation gauge, rose 0.3% in February. This was lower than the estimated 0.4% increase, as per economists polled by Reuters. The report has increased the likelihood of a rate cut, with money markets now pricing in a 66% chance of at least a 25 basis point cut in June.

Federal Reserve Chair Jerome Powell commented on the data, stating that it was “along the lines of what we would like to see.” This has kept the central bank’s baseline for interest rate cuts intact, although market participants are not expecting any rate cuts at the upcoming policy meeting in May.

Despite the uncertainty surrounding future rate cuts, most megacap growth stocks, such as Microsoft, Nvidia, and Amazon.com, saw gains in premarket trading. This positive start to the second quarter comes after the S&P 500 recorded its biggest gain since 2019 in the first three months of the year.

The gains on Wall Street have been driven by optimism around artificial intelligence, strong earnings, and hopes of a soft landing for the economy. However, the rise in the yield on the 10-year benchmark U.S. Treasury note to 4.237% has weighed on equities.

Overall, the market remains cautiously optimistic as investors await further data releases and statements from the Federal Reserve regarding future interest rate cuts.