©Reuters. Screens on the trading floor of the New York Stock Exchange (NYSE) show Federal Reserve Chairman Jerome Powell at a press conference after the Federal Reserve announced that interest rates will rise by half a percentage point, in New York City, USA, December
By Sruthi Shankar and Ankika Biswas
(Reuters) – Wall Street’s major stock indices were expected to open sharply lower on Thursday as the Federal Reserve’s guidance on sticking to long-term policy tightening dimmed hopes of an early end to the rate hike cycle.
The U.S. central bank raised rates by 50 basis points (bp) on Wednesday, slowing after four consecutive 75 bps hikes, though Fed Chairman Jerome Powell said recent signs of slowing inflation have not yet inspired confidence that the battle had taken place. won.
The Fed’s policy-making committee predicted it would continue to raise rates above 5% in 2023, a level not seen since a sharp economic downturn in 2007.
“The problem was that the market was looking for interest rate cuts in 2023 and that is not compatible with any credible economic scenario because you would need a proper collapse in economic activity and a rapid deterioration in the labor market,” says Willem Sels, global CIO, private banking and asset management at HSBC.
Money market participants currently expect at least two rate hikes of 25 basis points next year and borrowing costs will peak at 4.9% by May next year, before falling to around 4.4% by the end of the year.
Wall Street’s major indices have rebounded strongly since hitting 2022 lows in October on hopes of a less aggressive Fed, but the rally stalled in December on mixed economic data and worrying corporate forecasts.
Investors also processed economic data on Thursday that showed retail sales fell more than expected in November and the number of Americans filing for unemployment benefits fell last week, pointing to a tight job market.
“In some ways, today’s data reinforces what Powell said yesterday that this is going to take time and the market seems to want to try and flush through the messy parts and it just won’t be able to because the Fed won’t. I’m going to let it” , said Sameer Samana, senior global market strategist at Wells Fargo (NYSE:) Investment Institute.
The Bank of England and the European Central Bank also raised their key interest rates by 50 basis points each, signaling more likely increases in an effort to curb rising inflation.
At 8:57 a.m. ET, they were down 358 points, or 1.05%, were down 54.25 points, or 1.35%, and were down 194 points, or 1.63%.
Shares of megacap companies including Apple (NASDAQ:), Amazon.com Inc (NASDAQ:) and Microsoft Corp (NASDAQ:) fell more than 1% each in premarket trading.
Tesla (NASDAQ: ) Inc fell 2.9% after CEO Elon Musk announced another $3.6 billion in share sales, bringing its total this year to nearly $40 billion and frustrating investors as the company’s stock wallows at the bottom in two years.
Netflix Inc (NASDAQ:) fell 4.8% after a media report said the entertainment services firm will let its advertisers take their money back after they miss viewership targets.
Nvidia (NASDAQ:) Corp. fell 2.6% after HSBC Global Research began beating chipmaker stock with a “reduce” rating, while Western Digital (NASDAQ:) fell 5.2% after a report that Goldman Sachs (NYSE:) downgraded the data storage company’s shares from “neutral” to “sell.”