Thursday May 5th


Stock futures fall after Fed induced relief rally

U.S. stock index futures fell in early morning trade Thursday, putting Wall Street on track to give back some of sharp gains seen in the previous session after the Federal Reserve raised rates by half a point. Futures tied to the Dow Jones Industrial Average lost 163 points, or 0.5%. S&P 500 futures and Nasdaq 100 futures fell 0.6% and 0.8%, respectively. The moves come after a major rally for stocks on Wednesday. The Dow Jones Industrial Average on Wednesday rose 932 points, or 2.81%, and the S&P 500 gained 2.99% for their biggest gains since 2020. The Nasdaq Composite jumped 3.19%. Stocks rose for a third straight day to start the month, after the Fed increased its benchmark interest rate by 50 basis points, as expected, and said it would begin reducing its balance sheet in June. However, Fed Chair Jerome Powell said during his news conference that the Fed is “not actively considering” a larger 75 basis point rate hike, which appeared to spark a rally. Some Wall Street strategists had suggested markets could see a relief rally after the rate increase. After Powell’s comments, investors seemed at ease about the central bank’s ability to slow inflation without triggering a recession. Still, the Fed remains open to the prospect of taking rates above neutral to rein in inflation, Zachary Hill, head of portfolio strategy at Horizon Investments, noted. “Despite the tightening that we have seen in financial conditions over the last few months, it is clear that the Fed would like to see them tighten further,” he said. “Higher equity valuations are incompatible with that desire, so unless supply chains heal rapidly or workers flood back into the labor force, any equity rallies are likely on borrowed time as Fed messaging becomes more hawkish once again.” Carlyle Group co-founder David Rubenstein said investors need to get “back to reality” about the headwinds for markets and the economy, including the war in Russia and high inflation. “We’re also looking at 50-basis-point increases the next two FOMC meetings. So we are going to be tightening a bit. I don’t think that is going to be tightening so much so that we’re going slow down the economy. ... but we still have to recognize that we have some real economic challenges in the United States,” Rubenstein said on CNBC’s “Squawk Box.” Even after stocks rallied to finish the day, the market saw big moves on the down side after hours as companies continued reporting financial results for the last quarter. Etsy tumbled more than 12% and eBay lost 5.8% in extended trading, on lighter-than-expected revenue guidance for the second quarter. Meanwhile, Booking Holdings shares advanced more than 8% after hours. On Thursday morning, e-commerce company Shopify reported disappointing results on the top and bottom lines, sending the stock down 14%. Papa John’s, however, gained 3% after reporting a stronger-than-expected first quarter. In economic data, weekly jobless claims came in slightly higher than expected and labor productivity dropped 7.5% in the first quarter for its fastest decline since 1947. Shares in Asia-Pacific were mostly higher on Thursday following the U.S. Federal Reserve’s widely expected decision overnight to hike rates by half a a percentage point — its biggest increase in two decades. Mainland Chinese stocks closed in positive territory as they returned to trade following days of holidays. The Shanghai composite gained 0.68% to 3,067.76 while the Shenzhen component rose 0.226% to 11,046.38. Hong Kong’s Hang Seng index fell into negative territory, declining around 0.1% as of its final hour of trading. Markets in Japan and South Korea were closed on Thursday. Oil prices extended gains on Thursday on supply concerns after the European Union laid out plans for new sanctions against Russia, including an embargo on crude in six months, offsetting concerns over weaker Chinese demand. Brent was up 42 cents, or 0.4%, at $110.56 a barrel, and U.S. West Texas Intermediate crude rose 12 cents, or 0.1%, to $107.93. Both benchmarks gained more than $5 a barrel on Wednesday. Gold prices climbed Thursday after U.S. Federal Reserve Chair Jerome Powell ruled out large, aggressive interest rate hikes for the year as the central bank seeks to contain inflation without triggering an economic recession. Rate hikes tend to lift bond yields and make zero-yield bullion less attractive by raising its opportunity cost. Gold, which is also perceived as an inflation hedge, is now up for a third straight session in what could be its best winning streak since mid-April. Spot gold was up 1% at $1,899.26 per ounce after rising to its highest since April 29 earlier in the session. U.S. gold futures gained 1.7% to $1,899.7.