By Sruthi Shankar and Johann M Cherian
U.S. stock index futures edged higher on Thursday, as bank stocks rose after major lenders cleared the Federal Reserve's annual health test, while megacap stocks extended gains as investors shrugged off hawkish messages from the central bank chief.
Shares of Bank of America, JPMorgan Chase, Goldman Sachs and Wells Fargo rose more than 1% in premarket trading after the banks sailed through the Fed's annual test on Wednesday, showing they have enough capital to weather a severe economic slump.
Bank of New York Mellon and Charles Schwab rose almost 2%.
"The market is getting a sense of relief because the tests are critical. The banks passing with flying colors in what would be near depression conditions tells us that the fears regarding banks were probably exaggerated," said Thomas Hayes, chairman at Great Hill Capital.
The S&P 500 and Dow closed lower on Wednesday after Fed Chair Jerome Powell said he did not see inflation falling to the central bank's target rate "this year or next year" and that most of the policymakers expect the central bank will need to raise interest rates at least twice more by the year end.
Following the hawkish views, traders were pricing in an 81.8% chance the Fed would hike interest rates by 25 basis point to 5.25%-5.50% range in its July meeting, according to CME Group's Fedwatch tool, up from 74.4% a week ago.
"Economic data continues to beat on most fronts and it's hard to see a scenario where one or two hikes would derail the economy. But the odds of the hikes are much less than Powell is projecting so tech stocks are benefiting," said Hayes.
Apple inched 0.3% higher after closing at a record high on Thursday and edging closer to a $3 trillion market capitalization.
Shares of other high-growth companies such as Tesla and Nvidia rose more than 1% each.
Investors are awaiting fresh data including the final reading of first-quarter U.S. GDP and weekly jobless claims, due at 8:30 a.m. ET, to gauge the outlook for interest rates.
Investors will also parse the speeches by Powell and Atlanta Fed President Raphael Bostic during the session.
The Personal Consumption Expenditure index (PCE), the Fed's preferred inflation gauge, for May will be released on Friday. Economists polled by Reuters expect core rates to remain steady at 4.7%.
At 7:35 a.m. ET, Dow e-minis were up 110 points, or 0.32%, S&P 500 e-minis were up 14 points, or 0.32%, and Nasdaq 100 e-minis were up 58.75 points, or 0.39%.
Micron Technology rose 3.3% after the chipmaker beat estimates for third-quarter results, powered by demand for its memory chips.
Occidental Petroleum advanced 1.3% after Berkshire Hathaway Inc said it added more shares of the oil firm, boosting its stake to above 25%.
Salesforce inched up 0.6% after the software firm said it will invest $4 billion in its UK business in the next five years on Artificial Intelligence innovation.
(Reporting by Sruthi Shankar and Johann M Cherian in Bengaluru; Editing by Shinjini Ganguli)
