Thursday June 16th


Dow futures tumble 400 points, reversing Wednesday’s gains on rising recession fears

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 1.5%, or 460 points. S&P 500 futures were down 1.7%, while Nasdaq 100 futures shed 2.%. 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 and investors questioned whether the Fed can pull off a soft landing. 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. “It’s about time we exit this artificial world of predictable massive liquidity injections where everybody gets used to zero interest rates, where we do silly things whether it’s investing in parts of the market we shouldn’t be investing in or investing in the economy in ways that don’t make sense,” Allianz chief investment advisor Mohamed El-Erian told CNBC’s “Squawk Box” on Thursday. “We are exiting that regime and it’s going to be bumpy.” Tech shares moved lower in premarket trading following Wednesday’s bounce, with Tesla, PayPal, Nvidia, Amazon and Netflix all down more than 3%. “There is an astonishing level of tech selling right now,” wrote CNBC’s Jim Cramer in a tweet Thursday. “It is breathtaking to watch as sellers are sending the best techs down gigantically at 5 a.m.” Travel stocks including United, Delta and Carnival also took a leg lower. Data out Thursday further indicated a dramatic slowdown in economic activity. Housing starts dropped 14% in May, topping the 2.6% decline expected by economists polled by Dow Jones. The Philadelphia Fed Business Index for June came in with a negative 3.3 reading, its first contraction since May 2020. 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. Asia-Pacific markets were mixed on Thursday, with multiple regional markets shedding earlier gains as buoyant sentiment from overnight moves on Wall Street following a Federal Reserve rate hike that equated to its most aggressive such move since 1994 faded. The Hang Seng index in Hong Kong led losses among the region’s major markets, falling 2.17% to close at 20,845.43 as Chinese tech stocks saw sizable: Tencent dropped 3.21%, Alibaba slipped 3.03% and Netease declined 5.29%. In mainland China markets, the Shanghai Composite finished the trading day 0.61% lower at 3,285.38 while the Shenzhen Component edged 0.109% to 12,150.96. Japan’s Nikkei 225 rose 0.4% on the day to 26,431.20 while the Topix was up 0.64% to 1,867.81. Over in South Korea, the Kospi index gained 0.16%, finishing the trading day at 2,451.41. Oil prices erased early gains to head lower on Thursday, a day after a fall triggered by a U.S. interest rate hike, though tight supply limited losses. Brent crude futures declined 1.2% to $117.04 per barrel, while U.S. West Texas Intermediate (WTI) crude futures fell 1.2% to $113.92 per barrel. Both contracts broadly stayed within the previous session’s range. Prices slipped more than 2% overnight after the Federal Reserve raised its key interest rate by 0.75%, the biggest hike since 1994. Gold prices steadied on Thursday, buoyed by another dip in the dollar as investors assessed the implications of policy tightening by central banks to fight inflation. Spot gold was little changed at $1,831.80 per ounce by 0937 GMT. U.S. gold futures rose 0.6% to $1,830.60.