NASDAQ 100, Dow Jones, S&P 500: Lower after Fed’s Hawkish Tone Rattles Investors

Highlights

• Fed hints at future rate hikes.
• U.S. stock index futures edge lower.
• Market braces for intermittent and smaller rate increments.

Overview

On Thursday, major U.S. stock index futures contracts are edging lower following the Federal Reserve’s decision to hold off on a rate hike at its recent meeting. However, the central bank hinted that two more rate hikes might be on the horizon later this year.

At 08:00 GMT, blue chip Dow futures are trading 34274.00, down 10.00 or -0.03%. Benchmark S&P 500 Index futures are at 4413.75, down 4.75 or -0.11% and tech-driven Nasdaq futures are trading 15163.25, down 36.00 or -0.24%.

On Wednesday, both the broad market index and the Nasdaq Composite reached their highest levels since April 2022. The S&P 500 closed the session 0.08% higher, marking its fifth consecutive positive session and its longest winning streak since November 2021. Meanwhile, the Nasdaq rose 0.39%, while the Dow Jones Industrial Average saw a 0.68% decline.

Federal Reserve Signals Hawkish Stance

During a post-meeting press conference, Fed Chair Jerome Powell stated that the Federal Open Market Committee would take the next six weeks to assess the cumulative impact of monetary policy tightening before making a decision on the July policy move.

The Fed’s language and forward economic projections surprised the market with their increased hawkishness. Despite the initial shock, the major averages managed to recover from earlier losses before the end of Powell’s press conference.

While this policy decision indicates a transition from the escalation stage of the rate cycle to the calibration stage, it is evident that the Fed remains prepared to raise rates further if necessary. However, future rate hikes are likely to be more intermittent and in smaller quarter-point increments, depending on data suggesting a need for a more restrictive rate stance.

Eyes on Weekly Jobless Claims

Investors and policymakers eagerly await additional economic data releases. They will provide better insights into the labor market’s strength and consumer spending. The morning will see the release of weekly jobless claims numbers and retail sales for May at 12:30 GMT. The Philadelphia Fed’s June manufacturing survey, as well as the Fed’s May industrial production and capacity utilization numbers, will also be closely monitored.

Lennar Shares Rise Ahead of Opening

In corporate news, shares of homebuilding company Lennar are up 2.3% after reporting better-than-expected earnings and revenue for its fiscal second quarter. Lennar also raised its full-year delivery guidance. Autozone saw a more than 1% increase in its shares. The Board of Directors authorized an additional $2 billion for its ongoing stock repurchase program.

Investors will keep a close eye on corporate earnings as well, with Kroger, Jabil, and John Wiley scheduled to announce their earnings in the morning, followed by Adobe after the market close.

Short-Term Forecast:  Investors Digesting Fed Policy Decisions

U.S. stock index futures are seeing a slight decline as the Fed signaled potential rate hikes in the future. The Fed’s decision reflects a transition to a more calibrated rate stance. Going forward, traders expect to see intermittent and smaller rate hike increments. Additional economic data releases and corporate earnings reports will provide further insights into the market’s strength and direction.