Stock futures fell early Thursday after the Dow Jones Industrial Average and S&P 500 turned lower overnight following a Federal Reserve update by chair Jerome Powell, at the conclusion of its two-day meeting.
Futures tied to the Dow fell 86 points, recovering from earlier declines of nearly 500 points. S&P 500 futures fell 0.3% and Nasdaq 100 futures declined 0.24%.
The back-and-forth trading followed Wednesday’s Federal Reserve meeting, in which the central bank held its benchmark rate near zero but strongly indicated that the first hike since late 2018 is coming in March.
Chairman Jerome Powell rattled markets with comments that the Fed has “quite a bit of room” to raise rates before negatively impacting employment. Stocks fell sharply after the comment, and traders in the fed funds futures market are now pricing in five quarter-percentage-point increases this year.
The benchmark 10-year Treasury yield climbed above 1.8% following his remarks.
Still, the Dow ended the day down 129 points, after gaining more than 500 points at one point, following the Fed update. The S&P 500 lost 0.2% and the Nasdaq Composite was little changed, with a boost from Microsoft’s post-earnings gain.
“While offering some clarity on how the Fed would begin the process of removing policy accommodation, the outcome of the meeting fell short in providing the needed guidance on the timing and magnitude of the shift in policy,” said Charlie Ripley, senior investment strategist for Allianz Investment Management.
Uncertainty about the timing and magnitude of the Fed’s plans to tighten monetary policy had been building since the December meeting.
“Today’s meeting has market participants fully convinced that a March hike is certain, but with Chairman Powell not making any timing commitments, the door is slightly open for a slower moving Fed,” Ripley added.
Some tech shares were higher in extended trading, after continued swings in the regular session. Netflix jumped more than 4% on news that Pershing’s Bill Ackman bought 3.1 million shares. Tesla gained almost 3% following a strong earnings report. Meanwhile, Intel lost 2%, despite strong earnings.
Upholdings’ Robert Cantwell said the markets experienced a relief rally following Microsoft’s strong earnings report Tuesday night, which appeared to be a “good bellwether” for social media, gaming, software and other Nasdaq categories before the Fed update.
“The market in our view is totally overshooting and losing its mind, creating great opportunities for long term growth investors to snap up lots of great shares because, interestingly, it hasn’t really affected companies that actually carry debt,” Cantwell said of the Fed rates.
“Since the end of last year the market has been most aggressively discounting companies that are going to generate more cash in the future than they’re generating today… We’re a little upside down now,” he added.
Thursday is a packed morning for earnings, with Mastercard, Deutsche Bank, Blackstone, Southwest Air and JetBlue all scheduled to report quarterly results before the bell. Danaher, Valero and Northrop Grumman are also set to report.
