By Sruthi Shankar and Shristi Achar A
The tech-heavy Nasdaq was set to open higher on Friday as Tesla shares jumped on a tie-up with General Motors, though investors largely remained on the sidelines ahead of inflation data and U.S. monetary policy decision next week.
Tesla Inc shares jumped 6.3% in premarket trading after General Motors agreed to use the company's Supercharger network. GM shares climbed 3.9%.
The Nasdaq and S&P 500 have hit new highs for the year in recent sessions, boosted by an AI-driven rally in megacap stocks, a better-than-expected earnings season and expectations that the Fed is nearing the end of its rate-hiking cycle.
The benchmark S&P 500 ended Thursday 20% above its Oct. 12 closing low, heralding the start of a new bull market as defined by some market participants.
"We've had a pretty strong move up so far this year and you are getting some profit-taking. But the overall tone of the market is based on the idea that the Fed will pause its increases," said Rick Meckler, partner at Cherry Lane Investments.
"As it pauses, the broader market will start to rally and maybe catch up with the large-cap tech stocks that have led the way up until now."
Traders see a 72% chance that the U.S. central bank will hold interest rates at the current 5%-5.25% range at its June 13-14 policy meeting, according to CMEGroup's Fedwatch tool.
Consumer prices data on Tuesday will help shape expectations around further moves by the Fed, with traders already pricing in 50% chance of another 25-basis-point-rate hike in July.
"We expect the Fed to hike one last time in this cycle in July. By September, we think weakening activity and employment data will lead toward a more enduring pause, with the Fed holding at 5.5% until its first rate cut in March 2024," economists at BNP Paribas noted.
Signs of a resilient U.S. economy and hopes of the Fed pausing its aggressive monetary tightening have pushed volatility gauges tumbling. The CBOE Volatility index, commonly known as Wall Street's fear gauge, sank to a fresh pre-pandemic level of 13.53 points on Thursday.
Capping gains of high-growth stocks, yield on the two-year Treasury notes, most reflective of short-term rate expectations, rose to 4.57%. [US/]
At 8:38 a.m. ET, Dow e-minis were down 69 points, or 0.2%, S&P 500 e-minis were up 1 point, or 0.02%, and Nasdaq 100 e-minis were up 36 points, or 0.25%.
Target Corp slipped 1.4% after Citi downgraded the big-box retailer to "neutral", saying sales could fall further this year amid a challenging macro backdrop.
Adobe Inc added 3.7% after Wells Fargo upgraded it to "overweight", saying the Photoshop software maker was poised to benefit from the generative AI boom.
Netflix Inc gained 3.2% following a report that its subscriptions jumped following the streaming giant's crackdown on password sharing.
(Reporting by Sruthi Shankar and Shristi Achar A in Bengaluru; Editing by Vinay Dwivedi)
