Futures drop as Treasury yields rise after Fed’s hawkish pause

(Reuters) – U.S. stock index futures declined on Thursday as growth stocks took a hit from a jump in Treasury yields after the Federal Reserve held interest rates steady while hinting at another hike this year.

Rate-sensitive stocks including Apple, Meta Platforms, Alphabet, and Nvidia fell between 0.5% and 1.5% in premarket trading as the two-year and 10-year Treasury yields scaled multi-year highs.

The U.S. central bank delivered a widely anticipated pause on Wednesday and revised economic projections higher with warnings that the battle against inflation was far from over, prompting a weak session for Wall Street.

The Fed’s updated quarterly projections showed chances of the key rate being lifted one more time in 2023 to a peak range of 5.50%-5.75% and significantly tighter rates through 2024 than previously expected.

However, some investors doubt the central bank will stick to its guns, even though bets against the Fed’s hawkishness has mostly backfired since policymakers embarked on a monetary policy tightening campaign since March 2022.

“While the dot plots suggest upside risks to interest rates, we retain our expectations that the hike cycle is likely done and for the Fed not to raise rates again,” said Mark Haefele Chief Investment Officer, UBS Global Wealth Management.

“A variety of factors could weigh on the economy in the fourth quarter and push the Fed to remain on hold due to below-trend growth and lower core inflation.”

Traders’ bets on the benchmark rate remaining unchanged in November and December stood at 71% and 53%, respectively, according to CME’s FedWatch tool.

Investors will also keep an eye on economic data including the weekly jobless claims and existing home sales data in August for clues on the interest rates trajectory and the state of the economy.

Meanwhile, weak performance of recent listings after their debut highs have added to doubts over hopes of a revival in the initial public offering market as high interest rates and broader market declines may continue to weigh.

Marketing automation firm Klaviyo’s shares closed at $32.76, well below their first-day high on Wednesday. While Arm Holdings fell 3.4% to $51.12 premarket, nearing its IPO price of $51 per share and Instacart lost 1.5% on Thursday.

At 5:23 a.m. ET, Dow e-minis were down 88 points, or 0.25%, S&P 500 e-minis were down 18 points, or 0.4%, and Nasdaq 100 e-minis were down 88.75 points, or 0.59%.

FedEx jumped 5% after surprising investors with a big quarterly profit beat.

Broadcom fell 5.5% on report Alphabet-owned Google’s executives discussed dropping the company as a supplier of artificial intelligence chips as early as 2027.

Meanwhile, Marvell Technology rose 3.4% as the report said Google has been working to replace Broadcom with Marvell as the supplier for networking chips used in its data centers.

(Reporting by Ankika Biswas in Bengaluru; Editing by Arun Koyyur)

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