For the first time on Wednesday, the Dow surpassed 33,000 points after the Federal Reserve projected the strongest growth in nearly 40 years. This comes as the COVID crisis winds down. Moreover, the central bank repeated its pledge to keep its target interest rate near zero for years to come.
This year, inflation should exceed the Fed’s 2.0% target to 2.4%. According to Fed Chair Jerome Powell, it is a temporary surge that will not change the central bank’s stance.
On Thursday, Nasdaq 100 futures fell more than 1%. Bond yields soared to 14-month highs following the Federal Reserve’s pledge. That was to look past inflation for now and keep monetary policy loose through 2023.
In premarket trading, yield-sensitive tech stocks declined between 0.8% and 1.7%. These included Apple Inc, Facebook Inc, Netflix Inc, Amazon.com Inc, and Microsoft Corp.
A $1.9 trillion “rocket fuel” spending stimulus sparked fears of rising inflation. This also triggered a rise in longer-end Treasuries. This started a rotation into value stocks at the cost of high-growth tech stocks.
Big U.S. banks are sensitive to the economic outlook. These include JPMorgan Chase & Co, Bank of America Corp, Citigroup Inc, and Goldman Sachs. They were among the top gainers in the early premarket trade.
Dow E-minis added 46 points, or 0.14% at 06:26 a.m. ET. Moreover, S&P 500 E-minis lost 15.75 points or 0.4%. Nasdaq 100 E-minis fell 142.75 points or 1.08%.
Investors Closely Watch the Growth of Treasury Yields
The yield curve sharpened to its highest since 2015. On Wednesday, it followed a relatively muted reaction.
This spike in yields would raise borrowing costs for companies and consumers. Besides, it could ripple across other assets such as equities.
Investors are closely watching how fast U.S. Treasury yields may rise after a key U.S. central bank meeting.
The Fed restated loose policies that are likely to help boost even more growth and inflation.
Mark Cabana, head of U.S. rates strategy at Bank of America, remarked that it is a coiled spring. The Fed is hinting that it wants to see an overshoot, he said. It wants to see inflation and employment run quite hot, he added.
Cabana said that the Fed’s stance also raises some risks. That whenever they begin to hear a shift in tone from the Fed, there may be a bit more of a rapid adjustment in the market.