Futures drop as yields rise on Fed’s indication of prolonged higher rates.
Futures drop as yields rise on Fed's indication of prolonged higher rates.
U.S. Stock Market Futures Dip as Treasury Yields Surge
The U.S. stock market took a hit on Thursday as stock index futures fell, weighed down by a decline in growth stocks. The drop in futures came in response to a jump in Treasury yields, following signals from the Federal Reserve about an impending rate hike later this year.
Rate-sensitive stocks such as Apple, Meta Platforms, Alphabet, and Nvidia experienced declines of between 0.6% and 2.3% during premarket trading. This drop was driven by the two-year and 10-year Treasury yields, which reached multi-year highs.
On Wednesday, the Federal Reserve announced a widely anticipated pause in its monetary policy and revised its economic projections higher. However, they also issued warnings that the fight against inflation was not over. These announcements led to a weak session on Wall Street.
The Fed’s updated quarterly projections showed a likelihood of the key interest rate being raised one more time in 2023, reaching a peak range of 5.50% to 5.75%. It also indicated significantly tighter rates through 2024 than previously expected.
While some investors doubt whether the central bank will follow through on its projected hawkishness, bets against the Fed’s stance have mostly backfired since their monetary tightening campaign began in March 2022. Mark Haefele, Chief Investment Officer at UBS Global Wealth Management, expressed skepticism and wrote in a note, “While the dot plots suggest upside risks to interest rates, we retain our expectations that the hike cycle is likely done and for the Fed not to raise rates again. A variety of factors could weigh on the economy in the fourth quarter and push the Fed to remain on hold due to below-trend growth and lower core inflation.”
- Rupert Murdoch resigns as Fox and News Corp chairman.
- Russia restricts fuel exports temporarily.
- Bank of England bashes pound after pausing rate rises
According to CME’s FedWatch tool, traders’ bets on the benchmark rate remaining unchanged in November and December stood at 71% and 54%, respectively.
Investors are also closely monitoring economic data, including weekly jobless claims and existing home sales data, for insights into the trajectory of interest rates and the state of the economy.
The market’s anxiety is reflected in the CBOE volatility index, also known as Wall Street’s “fear gauge,” which hit its highest level in over three weeks.
In addition to concerns about interest rates, a dampened IPO market has added to investor unease. The weak performance of recent listings after their initial highs has diminished hopes of a revival in the IPO market.
Shares of marketing automation firm Klaviyo fell 3.2% in premarket trading, while Arm Holdings dropped 3%. Instacart also experienced a decline of 1.4%.
As of 7:16 a.m. ET, Dow e-minis were down 188 points, representing a 0.54% decrease. S&P 500 e-minis were down 34.75 points, or 0.78%, and Nasdaq 100 e-minis were down 160.75 points, or 1.06%.
In company news, FedEx surprised investors with a big quarterly profit beat, leading to a 4.7% increase in its stock price.
On the other hand, Broadcom saw a 7.2% decline after reports suggested that Google executives discussed dropping the company as a supplier of artificial intelligence chips by 2027. Meanwhile, Marvell Technology rose 5.3% as it was reported that Google has been working to replace Broadcom with Marvell as a supplier for networking chips used in its data centers.
In the world of entertainment, Warner Bros Discovery and Paramount Global both experienced modest gains of 0.3% and 0.9%, respectively. This was based on reports that writers and producers were close to reaching an agreement to end the Writers Guild of America (WGA) strike.
Despite the market dip, it’s important for investors to remember that short-term fluctuations are common, and a long-term perspective is crucial when making investment decisions.
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