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The S&P 500 and the Dow were poised for a slightly higher open on Monday, with markets focused on results from Nvidia and a key inflation report due later in the week, while investors were nervous about oil supplies from the Middle East being disrupted.
Markets welcomed Federal Reserve Chair Jerome Powell's comments on Friday, when he said "the time has come" to lower borrowing costs in the light of diminishing upside risk to inflation and moderating labor demand.
The main indexes rallied more than 1% in the previous session, with the S&P 500 and the Dow less than 1% from their respective record highs. Rate-sensitive small caps logged their strongest day in six week as equities continued to pare losses from the market rout in early August.
Traders are now betting on either a 25-basis-point or a 50-basis-point rate cut in September. Odds of the former have dropped to 65.5% from more than 70% in the previous week, while odds of a 50-bps cut have risen to 34.5% from about 30% last week, according to the CME Group's Fed Watch tool.
"The name of the game is the Fed. They did what the markets anticipated, so that's good news that they're going to start the easing cycle," said Thomas Hayes, chairman at Great Hill Capital LLC.
Attention will turn to the gross domestic product estimates for the second quarter and July's Personal Consumption Expenditure data, the central bank's preferred inflation gauge, due later in the week.
At 8:56 a.m. ET, Dow e-minis were up 80 points, or 0.19%, S&P 500 e-minis were up 8.5 points, or 0.15%, and Nasdaq 100 e-minis were down 17.5 points, or 0.09%.
Futures tracking the rate-sensitive small-cap Russell 2000 index also added 0.8% on increased prospects of monetary easing in September.
As earnings season draws to a close, chip designer and AI-favorite Nvidia, whose results are scheduled on Wednesday, traded flat in premarket trading.
Markets have been less forgiving this quarter of highly valued megacap stocks, which spearheaded the excitement around artificial intelligence.
They will scrutinize Nvidia's earnings to justify the stock's more than 160% year-to-date jump, which pushed its market cap value to No. 2, just below that of Apple, as of Friday's close.
"The two concerns and risks are going to be their gross margins... and their guidance," Hayes said.
Other chip stocks listed on the Nasdaq slipped, with Broadcom down 0.3%, Advanced Micro Devices off 0.7% and Micron declining 1.5%.
Results from Dell, Salesforce, Dollar General and Gap are awaited through the week.
Among top movers, oil companies such as Exxon, Occidental Petroleum and Halliburton gained more than 1% each, tracking a more than 2.6% jump in crude prices. Reports of production stoppages in Libya piled on to fears of supply disruptions from the Middle East as the geopolitical conflict continues.
U.S.-listed shares of China's PDD Holdings sank 19% after the Temu-owner missed market expectations for second-quarter revenue.
B Riley Financial dropped 3.3% after the lender announced a notification of delinquency with the Nasdaq.
Comments from San Francisco Fed President Mary Daly, a Federal Open Market Committee voting member this year, are due later in the day.
(Reporting by Johann M Cherian in Bengaluru; Editing by Pooja Desai)