Stock futures edged higher Thursday morning after the Dow Jones Industrial Average suffered a staggering 1,100-point drop in its tenth consecutive losing session, marking its worst streak since 1974. Investors appeared to regain some confidence as Dow futures rose 0.4%, alongside modest gains in S&P and Nasdaq 100 futures.
Fed’s Rate Policy Sends Shockwaves Through Markets
The sharp decline on Wednesday followed the Federal Reserve’s announcement to cut interest rates by 0.25 percentage points to a target range of 4.25% to 4.5%. More significantly, the Fed revised its forecast for 2025, reducing the expected number of rate cuts from four to two. The adjustment disappointed investors, many of whom had bet on a more aggressive easing of monetary policy to support economic growth.
Federal Reserve Chair Jerome Powell defended the cautious approach.
“We’re maintaining a meaningfully restrictive rate to ensure progress on inflation while preserving a robust labor market,” Powell said during a press briefing.
However, Wall Street reacted swiftly and negatively. The Dow Jones plunged 2.58% to close at 42,326.87, while the S&P 500 and Nasdaq Composite sank 2.95% and 3.56%, respectively. Treasury yields also surged, with the benchmark 10-year yield crossing 4.50%, further amplifying pressure on equities.
Tech and Sentiment Vulnerability
The sell-off was exacerbated by vulnerabilities in the tech sector, which has been a linchpin of market growth throughout the year. LPL Financial’s Jeff Buchbinder highlighted sentiment risks: “Once tech weakened, there wasn’t enough support from other sectors to prevent a broad-based decline.”
Micron Technology, a bellwether for semiconductor stocks, saw its shares nosedive 14% in early Thursday trading following weaker-than-expected guidance for its second quarter.
The Cboe Volatility Index (VIX), often referred to as Wall Street’s “fear gauge,” spiked sharply, reflecting investor unease over the Federal Reserve’s unexpected pivot.
Rebound Potential and Uncertainty
Thursday morning’s bounce in futures offered some hope that markets might stabilize after the severe sell-off. Still, analysts warned that ongoing uncertainty about the Fed’s monetary policy path could keep markets volatile in the coming weeks.
The focus now shifts to economic data, including inflation metrics and labor market updates, which will shape expectations for the central bank’s next moves. While some strategists see opportunities in this correction for long-term investors, others caution that elevated Treasury yields and high inflation expectations could weigh on equities into the new year.
As traders digest the implications of the Fed’s shift, market participants remain on edge, underscoring the delicate balancing act the central bank faces in navigating inflation and growth concerns.
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