U.S. stock index futures slumped early Thursday, as the gains seen after the Federal Reserve’s biggest interest rate hike since 1994 quickly faded.
- Futures on the Dow Jones Industrial Average YM00, -1.80% fell 563 points, or 1.8%, to 30088.
- Futures on the S&P 500 ES00, -2.25% dropped 89 points, or 2.4%, to 3705.
- Futures on the Nasdaq 100 NQ00, -2.75% decreased 338.25 points, or 2.9%, to 11291.
On Wednesday, the Dow Jones Industrial Average DJIA, +1.00% rose 304 points, or 1%, to 30669, the S&P 500 SPX, +1.46% increased 55 points, or 1.46%, to 3790, and the Nasdaq Composite COMP, +2.50% gained 271 points, or 2.5%, to 11099.
What’s driving markets
The three-quarters of a percentage point interest rate hike could be followed by another hike of that magnitude in July, or a half-point increase, according to Fed Chair Jerome Powell at a press conference Wednesday afternoon. The Fed also cut its economic growth forecast and lifted its unemployment outlook while not going as far as to predict recession.
“Of course, the record 75bp rate hike decision isn’t helping credit and stock markets trading higher today, but most of the current sell-off seems to be coming from major worries that the Fed is willing to accept worsening economic conditions, in the shape of an upcoming recession alongside higher unemployment (like four decades ago), in its fight against the pressure brought by rising prices,” said Pierre Veyret, technical analyst at ActivTrades.
Analysts also drew attention to the fact that not only did Powell express concern about last week’s data showing U.S. consumer prices shooting up by 8.6% in the 12 months ending May, but he also noted rising inflation expectations, as measured by the University of Michigan’s consumer sentiment report.
“Inflation expectations data had unnerved committee members,” said Ryan Djajasaputra, economist at Investec. “Powell stated that the Fed needed to take this development seriously.”
Meanwhile, the Swiss National Bank made a surprisingly large half-point rate hike Thursday, which buoyed the Swiss franc, ahead of a Bank of England rate decision later in the session.
U.S. weekly jobless claims, May housing starts and the June Philadelphia Fed manufacturing survey are due at 8:30 a.m. Eastern.