UKX FTSE 100 Index

By Will Horner 

U.S. stock futures edged up Tuesday, suggesting that the major indexes are poised to rebound ahead of data on new home building.

Futures tied to the S&P 500 index rose 0.4%, while Dow Jones Industrial Average futures added 0.3%. Nasdaq-100 futures rallied 0.8%, putting technology shares on course to pare some recent losses.

Stocks have been choppy in recent trading sessions as concerns about a spike in inflation weighed on sentiment. Investors are contending with a raft of unknowns, such as whether rising prices will prove temporary or more persistent, and whether the Federal Reserve will act by raising interest rates sooner than planned.

"That always was the key risk: central banks taking away the liquidity punch bowl before the party has ended," said Brian O'Reilly, head of market strategy for Mediolanum International Funds.

Inflation ranging between 2% and 4% could be the "sweet spot" for stocks, said Mr. O'Reilly. The economic rebound that is fueling inflation is likely to continue benefiting stocks that are sensitive to the reopening, such as banks, travel and leisure companies. But companies with strong balance sheets and an ability to raise prices, such as pharmaceutical companies and makers of common household goods, should also do well, he said.

"Inflation isn't necessarily bad for equities, but there will be winners and losers in terms of [which ones] are better at passing on that inflation to the customer," said Mr. O'Reilly.

While tech stocks have taken the biggest hit from rising inflation concerns, some investors see the recent retreat as an opportunity to buy fast-growing companies.

"Within tech, there are still some companies that look very cheap," said Jane Shoemake, client portfolio manager at Janus Henderson Investors. "If you believe in the longer-term trends supporting these companies, you should be buying."

Fresh data on U.S. housing starts for April is due at 8:30 a.m. ET. Economists are forecasting a small step back in new home-building after it hit a 15-year high in the previous month. Demand for houses has been strong during the pandemic, but construction firms have also warned about the impact of soaring lumber prices and labor-supply constraints.

Major retailers including Macy's and Walmart are due to report earnings ahead of the opening bell.

Overseas, the Stoxx Europe 600 rose 0.5%. The U.K.'s FTSE 100 gained almost 0.5% after data showed the U.K.'s unemployment rate edged lower in April.

Most major Asian indexes closed higher. Japan's Nikkei 225 gained 2.1%, while in Hong Kong, the Hang Seng Index rose 1.4%. Taiwan's Taiex jumped 5.2%. In mainland China, the Shanghai Composite Index edged up 0.3%.

Write to Will Horner at William.Horner@wsj.com

(END) Dow Jones Newswires

May 18, 2021 04:59 ET (08:59 GMT)

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