U.S. stock futures and global indexes slumped Thursday, suggesting a rally on Wall Street that came after the Federal Reserve approved its biggest interest-rate increase since 1994 wasn’t set to last.
Futures tied to the S&P 500 slipped 1.9%, a day after the broad index rallied 1.5% to halt a five-day losing streak. Blue-chip Dow Jones Industrial Average Futures lost 1.5% while Nasdaq-100 futures plummeted 2.4% putting technology stocks on course for steep losses after the opening bell.
Overseas, European indexes opened sharply lower. The pan-continental Stoxx Europe 600 index dropped 1.6% with sharp losses for rate-sensitive technology firms. In Asia, indexes were more mixed, with Japan’s Nikkei 225 rising 0.4% while the Hang Seng in Hong Kong fell 2.6%.
The Fed on Wednesday raised its benchmark rate by 0.75 percentage points, its largest hike in almost three decades, as it races to get rampant inflation under control. While the largely expected move prompted a rally on Wall Street as investors welcomed the effort to quell inflation, that optimism fizzled Thursday as investors contemplated the danger posed to the economy following years of low rates and tepid consumer price increases.
“The market is grappling with the reality that there is a regime change going on,” said Aoifinn Devitt, chief investment officer at Moneta. “Investors are either worried about inflation or they are worried about the Fed crushing the economy.”
Fed Chairman Jerome Powell suggested Wednesday that the “unusually large” rate rise wouldn’t become common, but he left the door open to another 0.75-percentage-point increase as soon as next month.
Interest-rate increases of that size could unsettle investors if they feel the Fed is racing too quickly to get ahead of inflation, Ms. Devitt said. “That may lead to even more anxiety in the market,” she said.
Global central banks are also rushing to tighten policy faced with similar economic woes. The Swiss central bank Thursday surprised analysts by hiking interest rates by 0.5 percentage points to negative 0.25%. Economists had been expecting bank officials to leave rates unchanged.
Later Thursday, the Bank of England is expected to raise its key interest rate to 1.25% from 1%, which would be its fifth move in five meetings.
The yield on benchmark 10-year U.S. Treasurys declined to 3.370% from 3.389% on Wednesday.
In commodity markets, Brent crude, the international oil benchmark, edged up 0.4% to $119.07 a barrel. Gold prices rose 0.5%.