Stock futures edge higher ahead of Fed minutes this week

Wall Street enters a holiday-shortened week looking to extend gains after global stocks posted their best weekly performance in two months, with the Federal Reserve's June meeting minutes serving as the marquee event on the economic calendar.

Stock futures edged higher Sunday evening as traders positioned for a week that will test whether the equity rally sparked by a lukewarm June jobs report has further room to run. The S&P 500 closed last week at its highest level in more than a month after data showed the U.S. economy added fewer jobs than expected, tempering speculation that the Federal Reserve would resume raising interest rates.

"The jobs report gave the market exactly what it wanted — not too hot to trigger a hawkish Fed, but not so cold that it signals recession," said Nathan Peterson, director of derivatives research and strategy at Charles Schwab. "The question now is whether the Fed minutes validate that Goldilocks narrative or push back against it."

The S&P 500 surged 3.2% last week, its best weekly gain since early May, while the Nasdaq Composite climbed 4.1% as investors rotated back into technology stocks following a sharp selloff in late June. The Dow Jones Industrial Average added 1.8% over the five sessions. Trading volumes were above the 20-day average on Friday as fund managers adjusted positions ahead of quarter-end rebalancing.

The Fed will release the minutes from its June 16-17 meeting on Wednesday at 2 p.m. in Washington. The central bank held its benchmark rate steady at 4.25% to 4.50% at that gathering, but the statement and dot plot will be scrutinized for any shift in the rate path. Markets are pricing in a 70% probability of a rate cut at the September meeting, according to CME FedWatch data.

Cross-asset backdrop supports risk appetite

The rally has been underpinned by a sharp decline in crude oil prices, with West Texas Intermediate crude falling to around $56 a barrel last week — down more than 20% from its April peak — as the U.S.-Iran conflict showed signs of de-escalation. Lower energy costs act as a tax cut for consumers and reduce inflationary pressure, giving the Fed more flexibility on policy.

The 10-year U.S. Treasury yield fell 12 basis points last week to 4.12%, its lowest level in three weeks, as the jobs data reinforced expectations of a dovish pivot. The dollar index held near 101.3, little changed from the prior week, while gold edged up to $2,365 an ounce.

All 11 S&P 500 sectors posted gains last week, led by technology and consumer discretionary, each up more than 4%. Energy was the laggard, rising just 0.8%, as the drop in oil prices weighed on exploration and production companies. The Cboe Volatility Index, or VIX, fell to 14.7, its lowest close since early June, signaling complacency among options traders.

What to watch this week

Beyond the Fed minutes, the economic calendar includes the June ISM services index on Monday, weekly jobless claims on Thursday, and the University of Michigan consumer sentiment survey on Friday. About a dozen S&P 500 companies are scheduled to report earnings, including PepsiCo and Delta Air Lines.

Peterson said the combination of lower oil prices, falling bond yields, and a stabilizing dollar creates a favorable backdrop for equities, but he cautioned that the VIX at current levels suggests the market may be underestimating the risk of a hawkish surprise from the Fed minutes.

"If the minutes show more concern about sticky inflation than the market expects, we could see a quick reversal of last week's gains," he said. "The setup is good, but the positioning is crowded."

This article is for informational purposes only and does not constitute investment advice.