Wall Street looks set for a weaker open Thursday as yesterday’s Fed-induced rally flames out and investors focus on jobs and growth prospects amid the central bank’s inflation fight.
U.S. equity moved lower Thursday, easing back from the biggest single-day gain for the S&P 500 in two years, as investors peeled away from a Fed-induced rally and looked to Friday’s payroll report for the next major signal for market direction.
The Federal Reserve, as expected, boosted its benchmark Fed Funds rate by 50 basis points, to a range of 0.75% to 1%, while detailing the first official plans to reduce its $8.9 trillion balance sheet. Chairman Jerome Powell, however, added a dovish caveat to the decision, suggesting that core inflation may have peaked and that a 75 basis point rate hike is not being “actively considered” by policymakers.
However, while the Fed appears to have won back the approval of Wall Street through both its telegraphing of yesterday’s rate hike and the rare specificity of plans to use 50 basis point moves in the future, the fact that it’s hiking rates into a slowing economy, raising the specter of a near-term recession, was not lost on the Chairman.
Stocks Move Lower, Fed Feels Pain, Elon Musk, eBay, Meta In Focus – 5 Things You Must Know
In an unusual move prior to his regular question-and-answer session with the media yesterday in Washington, Powell spoke directly to the American public, recognizing the “hardship inflation in causing” and vowing to “expeditiously bring it back down.”
“We are on a path to move our policy rate expeditiously to more normal levels,” Powell said. “Assuming that economic and financial conditions evolve in line with expectations, there is a broad sense on the Committee that additional 50 basis point increases should be on the table at the next couple of meetings.”
Those comments powered U.S. stocks to impressive end-of-session gains, with the Dow closing 932 points higher and the S&P 500 rallying to its strongest single-day gain since May of 2020.
That momentum provided a solid boost to European shares, which were marked 1.3% higher in mid-day Frankfurt trading, and laid a comfortable runway for the Bank of England, which boosted its Bank Rate by 25 basis points, to 1%, in its fourth rate hike in five months today in London.
Overnight in Asia, modest gain for stock in China adding to the region’s bullish session, with the MSCI ex-Japan index rising 0.43% heading into the close of trading,
U.S. stocks, however, aren’t following through on yesterday’s surge, and with Treasury bonds creeping higher, taking 10-year notes to 2.965%, and the dollar back on the march, rising 0.25% against its global peers to 102.828, investors may be willing to re-assess any dovish take from Powell’s post-meeting press conference.
“The market is way too optimistic about the Fed’s ability to tame inflation. The Fed is hiking aggressively into a weakening economy,” said Nancy Davis, portfolio manager of the Quadratic Interest Rate Volatility and Inflation Hedge Exchange-Traded Fund (IVOL) – Get Quadratic Interest Rate Volatility & Inflation Hedge ETF Report. “They can raise rates as much as they want – rate hikes don’t put more truckers on the roads.”
Futures contacts tied to the Dow Jones Industrial Average indicating a solid 120 point opening bell decline while those linked the S&P 500 priced for a 22 point pullback. Futures linked to the tech-focused Nasdaq are looking at a 95 point opening bell slide.
Twitter (TWTR) – Get Twitter, Inc. Report shares were one of the more active names in pre-market trading, rising 2.5% after Tesla (TSLA) – Get Tesla Inc Report CEO Elon Musk said he’s received around $7.1 billion in new equity funding, including a $1 billion contribution from Oracle (ORCL) – Get Oracle Corporation Report founder Larry Ellison, to help finance his $44 billion takeover of the social media group.
eBay (EBAY) – Get eBay Inc. Report shares tumbled 7.85% after the online marketplace added to a spate of muted outlooks from consumer-facing tech groups that overshadowed solid first quarter earnings.
Meta Platforms (FB) – Get Meta Platforms Inc. Class A Report shares moved 1.25% lower in pre-market trading amid reports that the social media and metaverse-focused tech group is looking to slow hiring for the remainder of the year as it grapples with surging costs.
