Stock futures falter as post-Fed Fed rally fades

US stock futures and global indices are lower, suggesting that Wall Street’s rally after the Fed meeting will not continue.

Futures tied to the S&P 500 Index fell 1.9% Thursday, a day after the general index rose 1.5% to halt its five-day losing streak. Futures for the leading Dow Jones Industrial Average lost 1.5% while Nasdaq 100 futures fell 2.2%, putting technology stocks on track for heavy losses after the opening bell.

Offshore, the Stoxx Europe 600 continental index fell 1.9% with sharp losses for rate-sensitive technology companies and economically sensitive retail stocks. In Asia, indices were more mixed, with Japan’s Nikkei 225 index up 0.4% while Hong Kong’s Hang Seng fell 2.2%.

In pre-market trading, technology stocks fell, with NvidiaAnd the

Amazon and Microsoft both fell between 2% and 3%. Twitter shares were an exception, rising 1% after the Wall Street Journal reported that Tesla CEO Elon Musk is expected to confirm he wants to buy the social media company when he talks to its employees on Thursday.

The Federal Reserve on Wednesday raised its benchmark interest rate by 0.75 percentage points, its biggest rise in nearly three decades, as it races to control rampant inflation. While the expected move drove up Wall Street as investors welcomed efforts to cool inflation, that optimism faded Thursday as investors pondered the danger posed to the economy after years of low interest rates and tepid increases in consumer prices.

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

I think that’s the realization that we could really head into a recession. “I’m not sure that has penetrated the market’s mind yet,” said Altaf Kassam, head of investment strategy for EMEA at State Street Global Advisors.

Federal Reserve Chairman Jerome Powell suggested on Wednesday that an “unusually large” rate hike would not become popular, but left the door open for another 0.75 percentage point increase as soon as next month.

Ovin Devitt, chief investment officer at Moneta, said interest rate increases of this magnitude could upset investors if they feel the Fed is racing too quickly to outpace inflation. “This could lead to more market anxiety,” she said.

The losses accelerated after the Swiss central bank surprised investors by raising interest rates for the first time in 15 years. The Swiss National Bank raised its policy rate by 0.5 percentage point to -0.25%, leaving only the Bank of Japan among the major advanced economy central banks that did not raise interest rates to tame inflation. Economists had expected the Swiss National Bank to leave interest rates unchanged.

“This is the last hurdle to fall,” said Sima Shah, chief strategist at Principal Global Investors. “If we’re getting central banks deemed perpetually pessimistic about raising interest rates, there’s no denying that there’s 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, rose 0.1%.

The Bank of England on Thursday raised its key interest rate as expected to 1.25% from 1%, marking its fifth step in many meetings, and said bigger moves may be needed to tame inflation. The British pound rose 0.3% against the dollar following the decision.

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

Bitcoin is down 3% from its level at 5 p.m. ET on Wednesday to $21,029.90, according to CoinDesk, putting it on track for a 10th consecutive day of decline. Cryptocurrencies have been subjected to widespread economic concerns harming risky trades and concerns about projects and companies selected in the crypto ecosystem.

In the commodity markets, Brent crude, the international oil standard, fell 1.4% to $116.90 a barrel. The price of gold rose 0.2%.

Weekly jobless claims data, due at 8:30 AM ET, showed that 229,000 Americans applied for unemployment benefits in the week ending June 11. The labor market has been a strength area for the economy, but Federal Reserve officials indicated the weak employment numbers may be a necessary consequence of the central bank’s efforts to control inflation.

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


Pictures:

Justin Lin/Shutterstock

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

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