By Samer Hasn, Senior Market Analyst at XS.com
S&P 500 E-mini futures are up 0.17% and NASDAQ 100 futures by 0.13%, after both indices went to record highs on Friday.
Stock futures are trending higher in early trading, heating up ahead of this week’s Federal Reserve decision. The anticipation is underpinned by expectations of easier policy, which is helping sustain bullish momentum across risk assets.
Despite mounting concerns over a weakening labor market and tariff-related costs, investors have embraced what isdescribed on Wall Street Journal as a “run it hot” trade, betting that rate cuts and tax stimulus will generate a new wave of economic growth and corporate earnings. This optimism has pushed benchmarks, speculative tech names, meme stocks, and even alternative assets like gold to fresh highs.
Attention will also fall on the Fed’s updated “dot plot” and the language from Chair Jerome Powell. David Mericle, chief U.S. economist at Goldman Sachs, argued that the crucial question for September’s meeting is whether policymakers will hint at consecutive cuts, according to Reuters. He noted that while the Fed is likely to acknowledge labor market softness, it may avoid signaling an October move. This perspective suggests that Powell’s communication could prove as market-moving as the rate decision itself.
Recent data illustrates the Fed’s dilemma. Consumer prices rose 2.9% year-on-year in August, accelerating from 2.7% in July, still above the central bank’s 2% target. At the same time, labor market weakness is becoming harder to ignore. Last week’s jobless claims surged to 263,000, the highest since October 2021, and well above expectations.
The mix of persistent inflation and rising unemployment filings deepens the debate over how aggressively the Fed should ease, with traders largely convinced that supporting employment now outweighs the risks of slightly elevated inflation.
Futures market is pricing in for a highly accommodative Federal Reserve, viewing an immediate 25 basis point rate cut this week as virtually inevitable. Furthermore, traders are betting on a much more aggressive easing cycle to follow, with a greater than 70% chance that the central bank will implement a total of 75 basis points in cuts before the end of the year, according to CME FedWatch Tool.
On data side, this week’s retail sales report will further shape expectations, with headline growth projected to slow to 0.2% from 0.5% month-on-month, while the core measure is forecasted to edge up by 0.4% from 0.3%. Any surprise strength may complicate the Fed’s easing narrative, especially with accelerating inflation readings.
Beyond the Fed, geopolitics is once again at play. U.S.–China trade talks resume this week in Madrid, with the fate of TikTok emerging as a critical test. China is trying to use a possible visit by Trump to Beijing as leverage in the talks, The Wall Street Journal reported. The U.S. wants concrete concessions, such as forcing TikTok to sell its U.S. business, limiting chemicals used to make fentanyl, and buying more American farm goods. China has pushed back, refusing to give up TikTok’s algorithm and using export controls to keep its negotiating power.
Analysts suggest that Xi Jinping is pursuing a strategy of protracted negotiations designed to minimize concessions while keeping U.S. pressure contained.
For markets, the outcome of these talks is significant. A breakthrough could ease trade uncertainty and support equities already pricing in aggressive Fed easing, which could make a cut of a full percentage point or more this year a likely possibility.