U.S. stock index futures are currently holding near their highs of the year early Tuesday as traders exercise caution ahead of the release of inflation data. This data has the potential to impact the ongoing debate at this week's Federal Reserve policy meeting.

Stock-Index Futures Trading Update

  • S&P 500 futures (ES00) rose 3 points, or 0.1%, to 4682.
  • Dow Jones Industrial Average futures (YM00) gained 39 points, or 0.1%, to 36845.
  • Nasdaq 100 futures (NQ00) added 27 points, or 0.2%, to 16477.

Monday's Performance

On Monday, the Dow Jones Industrial Average (DJIA) experienced a rise of 157 points, or 0.43%, closing at 36405. The S&P 500 (SPX) increased by 18 points, or 0.39%, reaching 4622. The Nasdaq Composite (COMP) saw a gain of 29 points, or 0.2%, ending at 14432.

Positive Performance and Expectations

The S&P 500 index currently sits at its highest level since March 2022, exhibiting a year-to-date rally of 20.4%. This increase is partly driven by the hope that slowing inflation will allow the Federal Reserve to initiate interest rate cuts in the coming months.

Federal Reserve Policy Meeting

The Federal Reserve is widely anticipated to maintain borrowing costs within the range of 5.25% to 5.50% at the conclusion of its two-day meeting on Wednesday. However, the statements made by the Fed and Chair Jerome Powell regarding the likelihood of future rate cuts may be influenced by the release of the U.S. November consumer price index (CPI) data.

Impact of Inflation Data

The U.S. November CPI data is scheduled to be released at 8:30 a.m. Eastern on Tuesday. Economists project that the headline month-on-month CPI will remain unchanged, just as it was in October, while the annual rate is expected to decline from 3.2% to 3.1%. However, the core CPI, which excludes volatile items such as food and energy, is predicted to rise by 0.3% compared to 0.2% previously, while the annual rate will likely remain at 4%.

Investors Hold Firm Ahead of Key Economic Data and Interest Rate Decisions

Investors are currently in a holding pattern as they await a string of important economic data releases and interest rate decisions. This cautious approach has led to relatively subdued market activity, according to Danni Hewson, the head of financial analysis at AJ Bell.

Central Bank Decisions: No Surprises Expected

Both the European Central Bank and the Bank of England are anticipated to maintain their current interest rates following their meetings on Thursday. While no surprises are expected in terms of their decisions, Hewson emphasizes the importance of their tone and choice of words, as they have the potential to impact any anticipated Santa rally.

Attention on U.S. Treasury Auction

Traders will also be closely monitoring a $21 billion auction of 30-year bonds by the U.S. Treasury, scheduled for 1 p.m. Last month's auction of 30-year bonds did not receive a positive response, causing yields to spike and stock volatility to increase.

Caution for Equity Investors

Mark Newton, the head of technical strategy at Fundstrat, warns that equity investors need to exercise caution due to the potential impact of CPI data on bond performance. If bonds give up some of their recent gains and yields start to reverse higher, it could hinder further stock market progress.

Newton believes that Treasury yields are showing signs of increasing once again, and he anticipates that the CPI report could be the catalyst for the CBOE 10 Year Treasury Note Yield Index index (TNX XX:TNX) crossing the 4.30% mark.

"While yields have risen over the past few trading days, stocks have yet to be affected," Newton added.

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