U.S. stock index futures edged higher on Tuesday, building on gains from the previous session amid rising optimism over potential interest rate cuts and increasing bets on Donald Trump securing a second term as President.

At 06:40 ET (10:40 GMT), futures for major U.S. stock indices showed positive movement: Dow Jones Futures rose 18 points, or 0.1%, S&P 500 Futures climbed 10 points, or 0.2%, and Nasdaq 100 Futures gained 36 points, or 0.2%.

Powell Flags Confidence in Lower Inflation
On Monday, Wall Street indexes closed higher, driven by expectations of imminent interest rate cuts. The Dow Jones Industrial Average rose 0.5% to a record-high close, while the S&P 500 increased by 0.3%, and the NASDAQ Composite climbed 0.4%.

Federal Reserve Chair Jerome Powell bolstered market confidence by stating that recent inflation data had strengthened the Fed’s belief in a downward trend in price pressures. Powell's remarks have significantly heightened the probability of a rate cut in the near future. Previously, Powell indicated that the Fed did not need to wait for inflation to reach 2% before implementing rate cuts. His comments triggered a sharp rise in bets for a rate cut in September.

Traders are now almost certain of a rate cut, with an 89% chance of a 25-basis-point cut and a small chance of a 50-basis-point cut, according to CME FedWatch.

Trump Names Running Mate Amid Increased Election Bets
Political developments also influenced market sentiment. Despite an assassination attempt on Donald Trump at a rally in Pennsylvania over the weekend, Wall Street remained largely unperturbed. On Monday, Trump was officially nominated as the Republican frontrunner for the 2024 presidential race and named Ohio Senator J.D. Vance as his vice-presidential running mate.

Trump’s chances of a second term have reportedly increased following the attack, which is seen as a factor that could lead to a looser regulatory environment in the U.S. Consequently, Trump Media & Technology Group (NASDAQ) surged over 30% following the attack, although it saw some consolidation in aftermarket trading.

Strong Earnings Boost Market Sentiment
Adding to the positive sentiment were stronger-than-expected earnings from Goldman Sachs (NYSE), which extended the trend of mostly positive earnings reports from major banks. Investors are now looking forward to the quarterly earnings reports from Bank of America (NYSE), Morgan Stanley (NYSE), and Charles Schwab (NYSE), scheduled for release before the market opens on Tuesday.

Upcoming Economic Data
Market participants are also awaiting the release of U.S. retail sales data for June, which is expected to show a 0.3% monthly decline as consumers grapple with high interest rates and elevated prices.

Crude Oil Prices Dip
Meanwhile, crude oil prices declined on Tuesday due to ongoing concerns about a slowing Chinese economy. At 06:40 ET, U.S. crude futures (WTI) were down 0.9% to $80.12 per barrel, while Brent crude fell 0.8% to $84.14 per barrel.

China, the world's second-largest economy and largest crude importer, recorded its weakest growth since the first quarter of 2023, adding to worries about global oil demand. Market participants are also anticipating the latest U.S. crude inventory forecast from the American Petroleum Institute, due later in the session.

Conclusion
The U.S. stock market's upward momentum is driven by a blend of optimism over potential interest rate cuts, political developments, and strong corporate earnings. Federal Reserve Chair Jerome Powell's remarks on inflation and rate cuts have significantly influenced market sentiment, making a September rate cut highly likely.

Political events, particularly Trump's increasing odds of securing a second term, have also added to market dynamics, especially in sectors that might benefit from a Trump presidency. Moreover, strong earnings reports from major banks like Goldman Sachs continue to bolster investor confidence.

However, challenges remain, particularly with the release of U.S. retail sales data and ongoing concerns about the global economic outlook, especially with the recent slowdown in China. The market's focus will continue to be on these developments as they unfold, shaping the direction of U.S. stock futures and overall market sentiment.

Also Read : Sensex and Nifty 50 Soar to Record Highs Amid Cautious Optimism

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