U.S. stock index futures edged higher on Tuesday as optimism grew that the Federal Reserve will begin its rate-cutting cycle this week with a significant reduction. Investors are eagerly awaiting the outcome of the Fed’s two-day policy meeting, with expectations favoring a 50 basis point (bps) cut, which could signal the start of an extended period of monetary easing.

As of 06:15 ET (10:15 GMT), Dow Jones Futures had risen 115 points or 0.3%, while S&P 500 Futures gained 20 points or 0.4%. Meanwhile, Nasdaq 100 Futures climbed by 100 points or 0.5%. This uptick in futures points to a positive market opening as investors grow more optimistic about the Fed's anticipated move to stimulate economic growth.

On Monday, however, U.S. stocks closed with mixed results as caution over the Fed’s meeting dampened trading volumes. The Dow Jones Industrial Average managed to hit a new record-high close, rising 0.6%, while the S&P 500 saw a modest 0.1% gain. Conversely, the NASDAQ Composite fell by 0.5%, dragged down by losses in tech stocks.

Fed Expected to Cut Rates by 50 bps

Markets are now heavily favoring a 50 bps interest rate cut by the Federal Reserve at the conclusion of its two-day meeting on Wednesday. Recent data from CME’s FedWatch Tool indicated a 68% chance of a larger 50 bps reduction, while the odds for a 25 bps cut have dwindled to 32%. This shift in expectations has contributed to volatility in the markets, although both the S&P 500 and Dow remain near their record highs.

Traders are also paying close attention to upcoming U.S. retail sales data, which could further support the case for a larger rate cut. The data, set to be released later on Tuesday, is forecast to show a month-on-month contraction in August, adding weight to the argument for stronger monetary easing.

The Fed’s decision on the extent of the rate cut will be closely followed by comments from Fed Chair Jerome Powell. His remarks at the conclusion of the meeting will be studied carefully by investors for guidance on the potential for further rate cuts in the coming months. Sticky inflation and a cooling labor market could, however, complicate the Fed’s path forward.

Intel Surges on Foundry Spin-Off Plan

In the corporate sector, Intel (NASDAQ: INTC) saw its stock rally over 7% in premarket trading after the chipmaker announced plans to spin off its foundry business. The move will see Intel’s foundry division operate as a separate unit with its own board, allowing the cash-burning division to raise capital from external investors. This decision comes as Intel looks to boost its balance sheet after recent share price declines following disappointing quarterly earnings.

In addition to the spin-off, Intel announced that it would sell part of its stake in Altera, a key acquisition it made in 2015. The chipmaker also revealed a partnership to create a custom chip for Amazon's (NASDAQ: AMZN) web services unit, further strengthening its position in the semiconductor market.

Microsoft (NASDAQ: MSFT) shares also saw a 2% increase after the tech giant announced a $60 billion share buyback program and a 10% hike in its quarterly dividend. These actions are likely to provide a further boost to the company’s stock, making it an attractive option for long-term investors.

Crude Prices Fall Ahead of API Data

Meanwhile, crude oil prices dipped slightly on Tuesday following previous gains driven by disruptions to U.S. oil output in the wake of Hurricane Francine. By 06:15 ET, Brent crude futures had dropped 0.5% to $72.42 per barrel, while U.S. crude futures (WTI) were trading 0.4% lower at $68.78 per barrel.

Both crude contracts had settled higher on Monday as traders anticipated supply disruptions due to the hurricane, which caused more than 12% of crude production and 16% of natural gas output in the Gulf of Mexico to be taken offline. According to the U.S. Bureau of Safety and Environmental Enforcement, these disruptions continue to affect production in the region.

The market is now awaiting the latest American Petroleum Institute (API) data, set to be released later in the session. The data will provide insights into U.S. crude stockpiles, and traders are expecting another decline in inventories. Official figures from the U.S. government are due on Wednesday and could offer a clearer picture of supply levels.

Looking Ahead

As traders digest the developments in both the stock and oil markets, the focus remains firmly on the outcome of the Fed’s meeting. The central bank's decision to cut rates could set the tone for the rest of the year, impacting a range of sectors from technology to energy.

With the Fed’s rate cut expected to spark a rally in economically sensitive sectors, investors will be closely watching for signs of how far the central bank is willing to go in its efforts to bolster the U.S. economy. In the meantime, corporate announcements like Intel’s foundry spin-off and Microsoft’s buyback program are providing short-term opportunities for gains in the tech sector.

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