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(Reuters) – U.S. stock index futures reversed early losses on Tuesday, pointing to another day of relief rally on Wall Street even as Treasury yields climbed on bets of more interest rate hikes from the Federal Reserve.
Traders linked premarket gains to portfolio rebalancing at the end of a volatile February, which was dominated by worries about the Fed sticking to its hawkish policies amid strong economic data and signs of elevated inflation.
Wall Street eked out gains on Monday, following heavy selloff last week that had pushed the major benchmarks to their biggest weekly percentage declines of the year.
“Yesterday we had a bargain hunt rally and I suspect that could be the case today,” said Peter Cardillo, chief market economist at Spartan Capital Securities.
“But of course, if the macro news should come in stronger than expected, we could see yields bumped up to the highs.”
Traders have started to price in the possibility of a bigger 50 basis-point rate hike in March, although the odds remain low at about 23%, according to Fed fund futures, which also suggest rates peaking at 5.4% by September, up from 4.57% now.
BofA Global Research warned the Fed could even hike interest rates to nearly 6%.
The yield on the two-year Treasury note, which tracks investors’ expectations of the path of interest rates, rose to 4.8%, trading just below a near four-month high hit in the previous session.
“We’re talking about stickier inflation in the economy and higher interest rates for longer. Markets still seem to think that we’re going to get rate cuts sometime in the next 12 months and the evidence just does not support that,” said Michael Hewson, chief market analyst at CMC Markets.
Chicago Fed President Austan Goolsbee, a voter in the rate-setting committee this year, will speak later in the day.
At 7:27 a.m. ET, Dow e-minis were up 101 points, or 0.31%, S&P 500 e-minis were up 14.75 points, or 0.37%, and Nasdaq 100 e-minis were up 55 points, or 0.46%.
The three main indexes were headed for monthly declines, with the blue-chip Dow in the red for the year.
Target Corp (NYSE:TGT) rose 1.6% in premarket trading as an increase in store traffic from discount-hungry Americans boosted the big-box retailer’s fourth-quarter sales.
Zoom Video Communications (NASDAQ:ZM) Inc jumped 6.8% in premarket trading after it forecast annual profit above Wall Street estimates and said it will integrate more artificial intelligence into its products.
Occidental Petroleum Corp (NYSE:OXY) slipped 0.9% after the oil producer said it would sharply raise spending this year, while Chevron Corp (NYSE:CVX) gained 1.4% after it raised its annual share buyback outlook to between $10 billion and $20 billion.
Goldman Sachs Group Inc (NYSE:GS) inched up 0.5%. Analysts expect the investment bank to unveil its medium-term financial goals at the investor day on Tuesday.
