Stock Futures Falter as Post-Fed Rally Fades

Dow Drops About 700 Points as Post-Fed Rally Reverses

U.S. stocks tumbled Thursday, undoing the prior day’s gains as volatility continued to rock the market and investors focused on the risks ahead.

Major indexes have notched big declines in 2022 as high inflation, rising interest rates and growing concerns about corporate profits and economic growth dent investors’ appetite for risk.

Stocks rallied Wednesday after Federal Reserve Chairman

Jerome Powell

suggested the central bank’s 0.75-percentage-point interest rate increase this week wouldn’t become common. On Thursday, that optimism fizzled and stocks declined across the market.

The S&P 500 fell 3.2%, while the Dow Jones Industrial Average dropped 2.3%, or about 704 points, to 29964. The Nasdaq Composite slumped about 4% as shares of big tech companies retreated. If the Dow industrials close below 30000, it would be the first time since January 2021.

“I think the markets are reassessing the market environment,” said

Michael Sheldon,

chief investment officer at investment advisory firm RDM Financial Group. “The outlook for growth and profits and inflation, at least over the next few months, is not all that favorable, unfortunately.”

The Fed’s 0.75-percentage-point rate increase was its largest since 1994 but lined up with investors’ expectations as the central bank races to tame high inflation.

Mr. Powell said that while the central bank isn’t trying to cause a recession, it was becoming more difficult to achieve a so-called soft landing, in which the economy slows enough to damp inflation without entering a recession.

Some analysts said investors are coming to terms with increasing risks to economic growth.

“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.

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

While Mr. Powell suggested Wednesday that the “unusually large” rate rise wouldn’t become common, 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. 

Shares of tech firms dropped, with Nvidia, Amazon and Microsoft each falling at least 2.9%. Twitter shares were down 1.1%, giving back earlier gains 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.

Tesla,

which is raising prices on some of its cars amid rising costs, was down more than 7%.

Switzerland’s 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 point 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 expected the SNB to 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 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.

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

The yield on the benchmark 10-year U.S. Treasury note fell to 3.326% from 3.389% on Wednesday. Treasury yields, which move in the opposite direction from prices, help set rates on a variety of consumer products including mortgages and auto loans.

Bitcoin declined 3.1% from its 5 p.m. ET level on Wednesday to $21,008, 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. Investors in cryptocurrency lender Celsius Network are unlikely provide the company with more financing that might bail out the company, The Wall Street Journal reported Thursday.

In commodity markets, Brent crude, the international oil benchmark, was little changed at $118.48 a barrel. Gold prices rose 1.5%.

Stocks fell overseas. The pan-continental Stoxx Europe 600 index dropped 2.5%. In Asia, the Hang Seng in Hong Kong fell 2.2%, while Japan’s Nikkei 225 added 0.4%. 

Stocks on Wall Street retreated after a Wednesday rally following the Federal Reserve’s interest-rate decision.



Photo:

justin lane/Shutterstock

Write to Will Horner at william.horner@wsj.com and Karen Langley at karen.langley@wsj.com

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