Stocks rallied in the U.S. on Tuesday amid increased optimism that the Federal Reserve will begin its rate-cutting cycle later this week with a sizable reduction.
Caution around the Fed caused Wall Street to suffer a flat session on Monday, although some flows into economically sensitive sectors caused the Dow Jones to hit an all-time high.
The Dow Jones Industrial Average rose 0.6% to a record close and the S&P 500 rose 0.1%, while the NASDAQ Composite lagged as technology stocks lost nearly 0.5%.
Fed Meeting Begins, Markets Favor a 50 Basis Point Cut
The Federal Reserve is widely expected to cut interest rates at the end of its two-day meeting on Wednesday, even though market expectations in recent sessions have favored a larger 50 basis point cut.
According to CME FedWatch, the chance of a 50 basis point cut is about 68%, and that of a 25 basis point cut is about 32%.
Uncertainty regarding the size of the cut had spurred some volatility on Wall Street in recent sessions, although both the S&P 500 and the Dow Jones remained near all-time highs.
Fed Chairman Jerome Powell’s comments at the end of the Fed’s two-day meeting will be closely watched as investors look for some guidance as to the possible extent of the easing cycle that could lead to further rate cuts in the coming months.
Recent data indicated that while the labor market cooled, inflation remained flat, a trend that could create complications for the Fed’s plans to continue cutting rates.
Tuesday’s economic data includes the release of the latest U.S. retail sales figures, which are expected to have contracted month-over-month in August, potentially adding further weight to the idea of a 50 basis point cut.
Intel Moves on the Back of Its Foundry Plans
In the corporate sector, Intel (INTC) rose more than 7% premarket after the chipmaker unveiled plans to spin off its foundry business and sell part of its stake in Altera.
Under the plan, Intel will spin off its foundry business into a unit with its own board of directors, and also give the cash-burning unit the chance to raise capital from outside investors.
The deal comes barely a month after Intel signaled heavy stock losses following poor quarterly results.
Intel also reported a deal to make a custom chip for Amazon’s (AMZN) web services unit.
Microsoft (MSFT) shares rose 2% after the software giant announced a nearly $60 billion share buyback program and increased its quarterly dividend by nearly 10%.
Oil Falls in Expectation of API Data
Crude oil prices declined on Tuesday after earlier gains caused by the disruption of U.S. production due to Hurricane Francine, as traders awaited the latest statistics on the country’s crude oil reserves. As reported Monday by the U.S. Office of Safety and Environmental Compliance, more than 12% of crude oil production and 16% of natural gas production in the Gulf of Mexico remain offline.
The American Petroleum Institute will release its weekly inventory data later in the session, ahead of Wednesday’s official figures, and traders are anticipating a further drop in U.S. crude stockpiles.
