US stock index futures recovered slightly on Tuesday following the sharp drop on Monday. Investors tried to take advantage of Monday's slump that sent the S&P 500 into the bear market territory. However, the market is unlikely to recover further as investors await the Federal Reserve's monetary policy decision, which is due tomorrow. Dow Jones futures increased by 142 points or 0.5%. S&P 500 and Nasdaq 100 futures jumped by 0.6% and 0.9% respectively.
Yesterday, the S&P 500 fell by 3.9% to its lowest level since March 2021, bringing its losses from its January record to more than 21%. This indicates the index has entered a bear market territory. During its last bear market, the S&P 500 lost 33.9% before beginning to recover. On average, bear markets last more than 18 months. If bullish traders fail to regain the initiative, the index would only begin to recover in mid-2023. The Dow Jones Industrial Average fell by 2.8%, 17% below the highest point of 2022, while the Nasdaq Composite decreased by 4.7%, bringing its losses for this sell-off to more than 33%.
Expectations of a higher than expected Fed rate hike continue to rise. The Federal Reserve could consider a 75 basis point hike tomorrow, which was unthinkable just a week ago. Market players were certain US inflation would decrease, and the US regulator would stick to its original plan to increase the rate by 50 basis points.
According to the futures market, traders are pricing in a 90% probability of a 75 basis point hike at the Fed meeting this Wednesday. These expectations have sent the yield of 10-year US Treasury bonds up to 3.4%. Bond yields have retreated to 3.32% afterwards, however the yield's rise towards 3.5% indicates that market players are anxious about a possible recession.
US PPI data for May will be released today, which could put pressure on equities once again.
Premarket movers:
Shares of Oracle jumped by 12% in the premarket, thanks to rising revenues fueled by rising demand for the software developer's products.
On the technical side, the S&P 500 did not recover from the gap down on Monday. The index is unlikely to regain lost ground today, as it approaches the closest support at $3,755. Strong PPI data could lead S&P 500 to retest this level. The closest key level for bulls is $3,788. A breakout above this level would push the index up to $3,826, where bearish traders would come into play. The next target is $3,866, but the index is less likely to reach it. If pessimism in the market prevails amid renewed speculation about fighting high inflation, the instrument could fall below $3,755 towards $3,731. A breakout below this level would quickly send the S&P 500 towards the new lows at $3,708 and $3,677.
