Stock Futures Edge Up but Jitters Are in the Air. Why the Fed Has Markets Nervous.

Dow Jones Industrial Average futures were up 80 points, or 0.2%, after the gauge hit its first record close of the month on Monday. Futures for the S&P 500 climbed 0.3%, while contracts tied to the tech-heavy Nasdaq 100 rose 0.5%.

The Federal Open Market Committee meets this week. While investors are almost certain that policymakers will vote to slash interest rates for the first time since the early days of the pandemic, they’re still not sure if it’ll be a quarter- or a half-point cut.

The odds have shifted in favor of a more aggressive move in recent days. On Tuesday, the market was pricing in a 69% chance that the central bank lowers borrowing costs by 50 basis points, according to the CME FedWatch tool.

It’s “a very rare level of uncertainty,” Deutsche Bank’s global head of macro research Jim Reid said in a morning research note. “The closest parallel to this uncertainty is the decision in March 2023, amidst the regional bank turmoil,” he added.

The last bit of data that could change the picture is the August U.S. retail sales report, due out today. Economists are expecting a 0.2% slide from the same period last year, according to data from FactSet. A bigger slowdown than that could shift the dial even further in favor of a half-point cut.

Oil prices fell as traders weighed up how Hurricane Francine will affect U.S. output. The international Brent benchmark dropped 0.3% to $72.51 a barrel, while West Texas Intermediate crude slipped 0.1% to $69.99.

Bond yields had ticked down slightly over the past 24 hours. The yield on the 10-year U.S. Treasury note was 3.613% and the 2-year note was yielding 3.559%.

The CBOE Volatility Index, also known as the VIX or the market’s fear gauge, was down 0.8% early Tuesday.

Over the past 5 days, it has plunged 10% as investors ramped up expectations for a half-point interest-rate reduction from the Federal Reserve on Wednesday.

The VIX spiked in early August when markets experienced a week of wild price swings. They’ve since stabilized.

Oil prices were falling early Tuesday on concerns that global demand is weakening, particularly in China, the second-biggest economy.

Chinese refinery output fell in August, a report showed over the weekend.

On the other hand, the Federal Reserve may stoke demand for energy with an interest-rate cut this week. Oil prices are still up about 5% over the past five days.

West Texas Intermediate, the U.S. standard, slipped 0.2% to $69.92 a barrel. Brent crude, the international benchmark, declined 0.4% to $72.48 a barrel.