Stock futures fall after Fed raises rates by most since 1994

U.S. stock index futures were under pressure Thursday, putting the major averages to give up the solid gains made in the previous session.

Futures contracts tied to the Dow Jones Industrial Average dropped 1.9%, or 590 points. S&P 500 futures were down 2.3%, while Nasdaq 100 futures shed 2.7%. All three futures contracts had earlier been trading in positive territory.

The 10-year Treasury yield resumed its massive June run on Thursday, reversing higher overnight. The 10-year yield was last around 3.44% after ending May at 2.84%.

Those moves come after the Federal Reserve implemented its largest interest rate hike since 1994 on Wednesday. The Fed raised rates by 75 basis points, as was widely anticipated.

“Clearly, today’s 75 basis point increase is an unusually large one, and I do not expect moves of this size to be common,” Federal Reserve Chairman Jerome Powell said at a news conference following the decision.

Stocks took a leg higher Wednesday after Powell said that a 50 or 75 basis point increase “seems most likely” at the next meeting in July, indicating the central bank’s commitment to fighting inflation. Powell did caution, however, that decisions will be made “meeting by meeting.”

The major averages ended the session higher, with the Dow and S&P 500 both snapping five-day losing streaks. The 30-stock benchmark added about 304 points, or 1%, while the S&P 500 advanced 1.46%. The tech-heavy Nasdaq Composite was the relative outperformer, rising 2.5%.

However, market sentiment appeared to sour once again Thursday as other central banks around the globe adopted more aggressive policy stances.

The Swiss National Bank overnight raised rates for the first time in 15 years. The Bank of England was set on Thursday to raise rates for the fifth straight time.

“Central banks in Switzerland and Hungary hiked rates by more than anticipated (while Brazil hiked inline and Taiwan raised actually a bit less), continuing the trend of aggressive policy tightening globally (the BOE is expected to increase rates in less than two hours while the world piles pressure on the BOJ to defend its 25bp target),” wrote Adam Crisafulli of Vital Knowledge.

“Meanwhile, gas prices are climbing in Europe as Russia dials back supplies further, creating increased inflationary pressures for the ECB. The combination of central bank tightening and upward pressures on energy costs is pushing yields higher around the world, undercutting equity sentiment,” he said.

Tech shares moved lower in premarket trading after a bounce on Wednesday, with Tesla, PayPal, Nvidia, Amazon and Netflix all down more than 3%.

The major averages entered Thursday’s session down for the week and well below record levels.

The S&P 500 and Nasdaq Composite are both in bear market territory, down roughly 21% and 32% from their all-time highs in January and November, respectively. The Dow, meantime, is 17% below its Jan. 5 all-time intraday high.

Rampant inflation, which is at the highest level in 40 years, has weighed on the major averages, as have fears around slowing economic growth and the possibility of a recession.

Morgan Stanley chief U.S. equity strategist Michael Wilson warned that the inflation problem won’t be solved overnight.

“It also raises the risk of a recession because you’re bringing forward rate hikes even faster, and I don’t think it’s going to help the bond market,” he said on CNBC’s “Closing Bell.”

Economic data out Thursday includes weekly jobless claims numbers, with economists surveyed by Dow Jones forecasting a 220,000 print. Housing starts will also be released, while Adobe and Kroger will report quarterly updates.