Stock Futures Falter as Post-Fed Rally Fades

US stock futures and global indexes slumped, suggesting Wall Street’s post-Fed meeting rally isn’t set to last.

Futures tied to the S&P 500 dropped 1.9% on Thursday, a day after the broad index rallied 1.5% to halt a five-day losing streak. Blue-chip Dow Jones Industrial Average Futures lost 1.5% while Nasdaq-100 futures fell 2.2%, putting technology stocks on course for steep losses after the opening bell.

Overseas, the pan-continental Stoxx Europe 600 index dropped 1.9% with sharp losses for rate-sensitive technology firms and economically sensitive retail stocks. In Asia, indexes were more mixed, with Japan’s Nikkei 225 rising 0.4% while the Hang Seng in Hong Kong fell 2.2%.

In premarket trading, shares of tech firms dropped, with Nvidia,

Amazon and Microsoft each falling between 2% and 3%. Twitter shares were an exception, rising 1% after The Wall Street Journal reported that Tesla chief executive Elon Musk is expected to confirm that he wants to buy the social-media company when he speaks to its employees Thursday.

The Fed on Wednesday raised its benchmark rate by 0.75 percentage point, its largest hike in almost three decades, as it races to get rampant inflation under control. While the largely expected move prompted a rally on Wall Street as investors welcomed the effort to quell inflation, that optimism fizzled Thursday as investors contemplated the danger posed to the economy following years of low rates and tepid consumer price increases.

Federal Reserve Chairman Jerome Powell said the central bank’s goal is to reduce inflation to 2%. The Fed approved a 0.75-percentage-point rate rise Wednesday, the largest interest rate increase since 1994. Photo: Elizabeth Frantz/Reuters

“I think this is the realization that we really could be heading for a recession. I am not sure that had really filtered through to the mind of the market until now,” said Altaf Kassam, head of investment strategy for Europe, the Middle East and Africa at State Street Global Advisors.

Fed Chairman Jerome Powell suggests Wednesday that the “unusually large” rate rise wouldn’t become common, but he left the door open to another 0.75-percentage-point increase as soon as next month.

Interest-rate increases of that size could unsettle investors if they feel the Fed is racing too quickly to get ahead of inflation, said Aoifinn Devitt, chief investment officer at Moneta. “That may lead to even more anxiety in the market,” she said.

Losses accelerated after the Swiss central bank surprised investors by hiking interest rates for the first time in 15 years. The Swiss National Bank raised its policy rate by 0.5 percentage points to negative 0.25%, leaving only the Bank of Japan among the major developed economy central banks not to have raised rates to tame inflation. Economists had been expecting the SNB would leave rates unchanged.

“This is the last hurdle to fall,” said Seema Shah, chief strategist at Principal Global Investors. “If we are getting the central banks who have been considered permanently dovish raising rates then there is no denying that there is a huge inflation problem in the global economy.”

The Swiss franc jumped 2% against the dollar and 2.4% against the euro following the move. The WSJ Dollar Index, which measures the dollar against a basket of its peers, edged up 0.1%.

The Bank of England on Thursday raised its key interest rate as expected to 1.25% from 1%, marking its fifth move in as many meetings, and said larger moves might be required to tame inflation. The British pound edged up 0.3% against the dollar following the decision.

The yield on benchmark 10-year US Treasurys rose to 3.473% from 3.389% on Wednesday, resuming their rise that has pushed yields to their highest levels in more than a decade. Treasury yields, which move in the opposite direction to prices, help set rates on a variety of consumer products including mortgages and auto loans.

Bitcoin declined 3% from its 5 pm ET level on Wednesday to $21,029.90, according to CoinDesk, putting it on course to fall for a 10th consecutive day. Cryptocurrencies have been hit by broad economic concerns that are hurting risky trades and worries about select projects and companies in the crypto ecosystem.

In commodity markets, Brent crude, the international oil benchmark, fell 1.4% to $116.90 a barrel. Gold prices rose 0.2%.

Weekly jobless claims data, due at 8:30 am ET, showed 229,000 Americans applied for unemployment benefits in the week ended June 11. The jobs market has been an area of ​​strength for the economy, but Fed officials have reported that weaker employment figures may be a necessary consequence of the central bank’s effort to control inflation.

Stocks on Wall Street advanced on Wednesday after the Federal Reserve’s interest-rate decision.


Photo:

justin lane/Shutterstock

Write to Will Horner at william.horner@wsj.com

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