(Reuters) – U.S. stock index futures were flat to slightly higher on Monday as caution prevailed ahead of a crucial Federal Reserve monetary policy decision later this week, with investors pricing in a sharp cut in borrowing costs.
Since Fed Chairman Jerome Powell hinted at a coming rate cut late last year, markets have embarked on a bull run, with the S&P 500 and the Dow Jones now near record highs.
However, after a mixed set of economic data and comments from a former policymaker in recent weeks, traders have adjusted their bets on the decision the central bank will make at its September 17-18 meeting.
The odds for a 50 basis point cut are at 59% compared to 30% a week ago, according to the CME FedWatch Tool, which showed a 41% probability of a 25 basis point cut. There are concerns that an excessive measure could mean the Fed sees the economy cooling at a faster pace.
“Just as important as the 25 vs. 50 debate will be the Fed’s communications. Would a 50 basis points be the early 2050s or a one-time bigger move to start the cycle? Would 25 basis points mean that the bar is set high for the subsequent 1950s? There is a lot to digest,” a group of Deutsche Bank strategists led by Jim Reid said in a note.
The benchmark index and the tech-heavy Nasdaq posted their biggest weekly jump in about 11 months on Friday, although analysts attributed the optimism to signs of a robust economy rather than rate cut expectations.
At 5:32 a.m., the Dow E-minis were up 95 points, or 0.23%, the S&P 500 E-minis were up 6.5 points, or 0.12%, and the Nasdaq 100 E-minis were down 4 .5 points, or 0.02%.
Futures tracking small caps, which tend to perform well with lower financing costs, outperformed with a rise of 0.90%.
Economic data for the week as a whole is light, with retail sales, weekly unemployment claims, housing starts and industrial production in stock.
Price-sensitive growth stocks like Nvidia fell 0.40%, while Meta rose 0.30% and Tesla rose 0.60% in premarket trading.
Intel Corp rose 3.7% after a report showed the chipmaker had officially qualified for as much as $3.5 billion in federal grants to make semiconductors for the US Department of Defense.
Trump Media & Technology added 4.5% after an apparent second assassination attempt on the Republican candidate and former president on Sunday, weeks before the closely watched US presidential election.
Crypto stocks trended lower, with Microstrategy down 2% and Riot Platforms down 1.4%, for a 1.7% drop in bitcoin prices.
(Reporting by Johann M Cherian in Bengaluru; Editing by Pooja Desai)