Wall Street’s main indexes are on track to extend losses for a fourth straight session on Thursday as investors worry that the Federal Reserve will continue to raise interest rates for longer than previously anticipated.
Market participants are hopeful that the Fed, which raised interest rates by 75 basis points on Wednesday, will ease its hawkish stance in the near term after a series of major rate hikes have fanned recession fears.
However, the tech-heavy S&P 500 and Nasdaq marked their biggest one-day percentage declines in almost a month after Fed Chair Jerome Powell said it was “very premature” to discuss when the central bank might halt rate hikes.
While traders are still torn between a possible 50 bps and 75 bps rate hike in December, the Fed’s peak funds rate is seen rising to 5% or higher next year, compared to previous forecasts of a 4.50%-4.75% increase.
“The Fed is focused on turning the discussion away from the pace of gains to levels and the length of time their policy remains limiting. This brings in more hawkish rhetoric,” said Michelle Cluver, portfolio strategist at Global X ETFs.
“This means that your terminal rates are higher and that’s why the market is re-fixing rates that stay higher for a longer time.”
US stocks drop ahead of Fed announcement
Meanwhile, the number of Americans filing new claims for unemployment benefits unexpectedly fell last week, providing further evidence of a strong labor market.
Another data set on Thursday showed the US service industry grew at its slowest pace in almost 2.5 years in October and businesses continued to face higher input prices, confirming that inflation is shifting to services from goods.
Friday’s nonfarm payrolls report will be important as investors try to gauge whether the Fed’s rate hikes have significantly cooled the economy.
At 12:29 a.m. ET, the Dow Jones Industrial Average was down 16.78 points, or 0.05%, at 32,130.98, the S&P 500 was down 20.26 points, or 0.54%, at 3,739.43, and the Nasdaq Composite was down. 109.26 points, or 1.04%, at 10,415.53.
Shares of tech firm megacap extended losses, with Apple Inc, Microsoft and Alphabet (GOOGL.O) dropping between 1% and 4% as yields on the 10-year US Treasury hit their highest level since Oct. 25.
Gains in industries including aircraft maker Boeing and heavy equipment maker Caterpillar capped losses in the Dow Jones.
Among companies reporting their quarterly results, Royal Caribbean Group rose 4.7% after mixed results, while Etsy Inc jumped 13.6% to top the S&P 500 after beating quarterly earnings forecasts.
Qualcomm Inc and Roku Inc fell 7.5% and 4.1%, respectively, after their holiday quarter forecasts fell below expectations.
Downward issues outnumbered advances for the 1.66-to-1 ratio on the NYSE and for the 1.47-to-1 ratio on the Nasdaq.
The S&P index recorded four new 52-week highs and 44 new lows, while the Nasdaq recorded 43 new highs and 241 new lows.