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(Reuters) -U.S. stock indexes were set to open lower on Thursday as yields climbed against the backdrop of worries that the Federal Reserve’s rate-hike cycle is far from over as the central bank hinted at smaller rate hikes.
Stocks initially received a boost after the Fed on Wednesday raised interest rates by 75 basis points as expected, and the policy announcement left open the possibility of smaller increments.
However, such optimism was quickly doused after Fed Chair Jerome Powell said it was “very premature” to discuss when the central bank might pause the rate hikes.
The benchmark S&P 500 ended 2.5% lower on Wednesday, marking its biggest percentage decline in almost a month.
While traders are still split between the odds of a 50 bps and 75 bps rate hike in December, the peak Fed funds rate is seen climbing to 5% or higher next year, compared with a prior estimate of 4.50%-4.75% rise..
“The implication that the terminal rate could be over 5% scared markets that rate hikes are going to be a bit more frequent and maybe a bit higher going forward,” said Robert Pavlik, senior portfolio manager at Dakota Wealth in Fairfield, Connecticut.
Meanwhile, the number of Americans filing new claims for unemployment benefits unexpectedly fell last week, providing further evidence of a strong labor market.
The more comprehensive nonfarm payrolls report due on Friday will be crucial as investors try to gauge whether the Fed’s rate hikes have significantly cooled the economy.
Separately, a survey from the Institute for Supply Management due at 10 a.m. ET is expected to show non-manufacturing PMI dipped to 55.5 in October from 56.7 in September.
The tech-heavy Nasdaq slumped 3.4% on Wednesday as rate-sensitive growth stocks came under pressure on the prospect of higher rates.
On Thursday, shares of megacap technology companies Apple Inc (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOGL) slipped between 0.3% and 2% in premarket trading as the 10-year U.S. Treasury yield hit its highest level since Oct. 25. [US/]
At 8:39 a.m. ET, Dow e-minis were down 225 points, or 0.7%, S&P 500 e-minis were down 35.25 points, or 0.94%, and Nasdaq 100 e-minis were down 132 points, or 1.21%.
Among other stocks, Moderna (NASDAQ:MRNA) tumbled 11.7% after cutting its annual sales forecast for its COVID-19 vaccine.
Qualcomm (NASDAQ:QCOM) Inc and Roku (NASDAQ:ROKU) Inc tumbled 8.4% and 21.2% respectively after their holiday quarter forecasts fell below expectations.
