S&P 500, NASDAQ Composite Rise after Cooler Inflation Data, Robust Spending

The major U.S. stock indexes are expected to open higher based on the pre-market trade. Stocks were being underpinned early in the session after Federal Reserve Chairman Jerome Powell signaled on Wednesday that the aggressive pace of this year’s interest rate hikes could be about to slow.

The S&P 500 Index and NASDAQ Composite were further boosted shortly before the cash market opening after an inflation report closely watched by the Federal Reserve came in less than expected.

At 14:13 GMT, the blue chip Dow Jones Industrial Average futures contract is trading 34625.00, up 26.00 or +0.08%. The benchmark S&P 500 Index futures contract is at 4092.75, up 11.50 or +0.28% and the technology-weighted NASDAQ Composite is trading 12064.25, up 22.00 or +0.18%.

Bullish Tone Building

Fed Chair Powell ignited the current rally when he said on Wednesday the U.S. central bank could scale back the pace of interest rate hikes from the recent 75 basis points “as soon as December”, though he still cautioned the fight against inflation was far from over.

Building on the bullish theme generated by Powell’s remarks, stocks are set up to extend yesterday’s rally on the back of data released on Thursday that showed a mild easing in inflation and solid consumer spending in October, reaffirming the optimism of a likely downshift in the Federal Reserve’s policy on aggressive rate hikes.

The core personal consumption expenditure (PCE) index, excluding volatile items, eased to 0.2%, against expectations of 0.3%. Additionally, a reading from the Commerce Department showed consumer spending, which accounts for more than two-thirds of U.S. economy activity, rose 0.8% after an unrevised 0.6% increase in September.

Stocks Making Bullish Moves Before Opening

Five Below rallied 9.3% in premarket trading in the wake of better-than-expected quarterly results. The discount retailer said customer traffic and spending throughout the quarter, and effective expense management also helped, CNBC reported.

CNBC also wrote that Okta shares surged 15.9% in early trading as the identify management software company issued upbeat revenue guidance for its full fiscal year.

Daily Forecast

Ahead of the opening, traders are now seeing a 91% chance that the Fed will increase its key benchmark rate by 50 basis points in December, with the terminal rate expected to peak under 5% in May 2023.

This should be enough to sustain the stock market rally, but there are still obstacles that could hinder the rally. Today, at 15:00 GMT, traders will get the chance to respond to the latest ISM Manufacturing PMI report. It is expected to show a small contraction to 49.7.

Gains could also be limited due to Friday’s U.S. Non-Farm Payrolls report. On Wednesday, the ADP private sector report showed the pace of hiring was slowing. Bullish investors want to see a weakening labor market.