Dow Futures Bounce Back, More Inflation Data—and What Else Is Happening in the Stock Market Today

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The Federal Reserve’s monetary policy committee begins its next key meeting on Tuesday.

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Stocks were beginning to bounce back Tuesday, after a Monday selloff linked to inflation fears and recession risks rocked markets and pushed the S&P 500 index into a bear market.

Futures for the Dow Jones Industrial Average rose 225 points, or 0.7%, after the index retreated 876 points on Monday to close at 30,516. S&P 500 futures signaled a start 1% higher, with the tech-stock heavy Nasdaq poised to climb 1.2%; the S&P 500 plunged 3.9% on Monday and the Nasdaq plunged 4.7%.

Overseas, the pan-European Stoxx 600 gained 0.1% and Tokyo’s Nikkei 225 lost 1.3% to follow Wall Street lower from Monday.

Monday’s selling saw the Dow notch its third consecutive decline of 500 points or more for the first time on record, while the S&P headed into bear-market territory—defined as slump of greater than 20% from recent highs. Even the rally implied by stock-index futures in the day ahead would keep the S&P 500 in that zone.

Behind the erosion in investor sentiment is the risk of recession amid signs of persistent inflation, which is at a multidecade high. Central banks including the Federal Reserve are expected to battle inflation with more aggressive monetary policy, including multiple interest-rate increases. The concern is that the Fed can’t engineer a “soft landing”—cooling down inflation without causing a recession.

“The U.S. market entered bear territory last night, with its main markets dropping to long-forgotten lows. The crux of the concern plaguing investors is how harshly the Fed plans to tackle rising inflation,” said Sophie Lund-Yates, an analyst at broker Hargreaves Lansdown . “Getting the balance wrong and hiking interest rates too aggressively could see recession fears become a reality.”

Having already raised rates twice this year, the Fed’s monetary policy committee begins meeting today and will announce its next move on Wednesday. 

Following higher-than-expected U.S. consumer price index (CPI) data last Friday, bets have been rising that the Fed will hike by a supersize 75 basis points. Most increases are 25 basis points, which is one-quarter of a percentage point. The Fed last raised rates by a sizable 50 basis points last month, and has since indicated that bigger increases are unlikely—though the latest data could pressure that guidance.

Another key data release linked to inflation stands before that announcement: the producer price index (PPI) for May. “U.S. PPI today will be closely watched for the next inflation impulse,” said Jim Reid, a strategist at Deutsche Bank.

PPI measures the change in prices from the perspective of sellers and is expected to have fallen to 10.9% year-over-year in May.

PPI “has started to show signs of slowing and is much more a leading indicator than CPI which tends to be more backward looking,” noted Michael Hewson, an analyst at broker CMC Markets . “In April we fell to 11% from 11.5% in March, and we could fall further when May’s numbers are released later.”

A hotter-than expected PPI number could reinforce that inflation has yet to peak and prompt further selling of stocks. The opposite—a lower-than-expected number—could support that the worst of rising prices is over and buoy investor sentiment.

Write to Jack Denton at jack.denton@dowjones.com