U.S stock futures fell sharply on Thursday, as traders weighed the release of inflation data closely watched by the Federal Reserve, and Wall Street braced for its worst first half performance since 1970.
How are stock-index futures trading?
-
S&P 500 futures
ES00
slid 1.4% to 3,766 -
Dow Jones Industrial Average futures
YM00
fell 1.1% to 30,653 -
Nasdaq 100 futures
COMP
slumped 1.8% to 11,477
On Wednesday, the Dow Jones Industrial Average
DJIA
rose 82 points, or 0.3% to end at 31,029.31. The S&P 500
SPX
lost 0.1% to 3,818.83. The Nasdaq Composite
COMP
lost less than 0.1%, closing at 11,177.89.
The action on Wednesday was choppy, leaving the CBOE Volatility Index
VIX
— a gauge of expected equity market volatility — elevated at 28.2, compared to its long run average around 20.
What’s driving the markets?
Futures remained lower after a key gauge of U.S. inflation rose 0.6% in May largely due to the higher cost of gas and food, though there were signs that price pressures were starting to ease.
The rise in the so-called personal-consumption price index was triple the 0.2% gain in April. But a narrower measure of inflation that omits volatile food and energy costs, known as the core PCE, rose by a relatively modest 0.3% for the fourth month in a row — below Wall Street’s 0.4% forecast.
Federal Reserve Chairman Jerome Powell said Wednesday he sees a path back to 2% inflation, but warned there was “no guarantee that we can do that” while sustaining a strong labor market. The PCE measure is the Fed’s preferred inflation gauge.
The S&P 500 was on course to take its losses for 2022 to more than 20%. Since peaking near 4,800 in early January, the U.S. benchmark stock index has crumpled, amid investor fears that surging inflation is battering consumer confidence and damaging the global economy.
Read: What’s next for the stock market after the worst 1st half since 1970? Here’s the history.
Sentiment has also been hit by Russia’s invasion of Ukraine, a move that has heightened geopolitical angst and contributed to sharply rising energy and food prices.
In previous recent episodes of market tantrums, such as the 2020 COVID-19 sell-off, investors could look to central banks for succour. But with inflation in most major economies at their highest level in many decades, monetary guardians like the Federal Reserve are stressing their committment to tighten policy to damp price pressures. Even if that means hurting growth and, consequently, corporate profits.
“I do not envision equities recovering until the U.S. rates market is pricing more meaningful cuts from the Fed,” said Stephen Innes, managing partner at SPI Asset Management, in a note to clients.
“Implied Fed pricing has declined over the last few weeks – from a peak of 4% to more like 3.50 %. But that is a ton of rate hike risk for the market to digest,” he said.
Initial jobless claims fell 2,000 to 231,000 in the week ended June 25, the Labor Department said Thursday. Economists polled by The Wall Street Journal had estimated new claims would inch up to 230,000 from last week’s initial estimate of 229,000.
The yield on the US 10-year Treasury
BX:TMUBMUSD10Y
was down 7 basis points to 3.024%, reflecting a move into perceived havens. Deteriorating risk apetite has pushed bitcoin
BTCUSD
back below $20,000, where it was trading on Thursday.
Adding to trader anxiety is the second quarter company earnings season, which will kick into gear in the next few weeks. Recent reports from consumer-facing companies — such as Bed Bath & Beyond
BBBY
— have been poorly received.
Better news emerged from Asia, where a survey of China’s manufacturing sector registered expansion for the first time since March after COVID-19 restrictions were eased. The Shanghai Composite
CN:SHCOMP
rallied 1.1% in response.
The mood in Europe was cautious as traders tracked the fall in U.S. futures, with the Stoxx 600
XX:SXXP
shedding 1.5%.
