Dow futures dip in volatile trading as investors grapple with Fed tightening ahead

U.S. stock futures traded volatilely Thursday morning as investors mulled over an update from the Federal Reserve.

Futures tied to the Dow declined 90 points in highly volatile trading, easing up some from an earlier plunge of nearly 500 points. S&P 500 futures were near flat and Nasdaq 100 futures ticked up 0.1%.

McDonald’s shares fell 2% in premarket trading after the fast-food chain’s fourth-quarter earnings missed Wall Street expectations. The company said higher costs weighed on profits.

Tesla dipped 1% and Intel lost 3% in early morning trading despite strong earnings reports.

Netflix jumped more than 4% on news that Pershing’s Bill Ackman bought 3.1 million shares.

The back-and-forth trading followed the Fed’s announcement Wednesday at the conclusion of its January policy meeting. The central bank held its benchmark rate near zero, but strongly indicated the first hike since late 2018 could come as soon as March.

Chairman Jerome Powell rattled markets with comments that the Fed has “quite a bit of room” to raise rates before negatively impacting employment. Stocks fell sharply after the comment, and traders in the fed funds futures market are now pricing in five quarter-percentage-point increases this year.

The benchmark 10-year Treasury yield climbed above 1.8% following his remarks.

Still, the Dow ended the day down 129 points, after gaining more than 500 points at one point, following the Fed update. The S&P 500 lost 0.2% and the Nasdaq Composite was little changed, with a boost from Microsoft’s post-earnings gain.

“While offering some clarity on how the Fed would begin the process of removing policy accommodation, the outcome of the meeting fell short in providing the needed guidance on the timing and magnitude of the shift in policy,” said Charlie Ripley, senior investment strategist for Allianz Investment Management.

Uncertainty about the timing and magnitude of the Fed’s plans to tighten monetary policy had been building since the December meeting.

“Today’s meeting has market participants fully convinced that a March hike is certain, but with Chairman Powell not making any timing commitments, the door is slightly open for a slower moving Fed,” Ripley added.

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Upholdings’ Robert Cantwell said the markets experienced a relief rally following Microsoft’s strong earnings report Tuesday night, which appeared to be a “good bellwether” for social media, gaming, software and other Nasdaq categories before the Fed update.

“The market in our view is totally overshooting and losing its mind, creating great opportunities for long term growth investors to snap up lots of great shares because, interestingly, it hasn’t really affected companies that actually carry debt,” Cantwell said of the Fed rates.

“Since the end of last year the market has been most aggressively discounting companies that are going to generate more cash in the future than they’re generating today… We’re a little upside down now,” he added.

There also is a full slate of economic news on tap, with fourth-quarter GDP, durable goods orders and weekly jobless claims due at 8:30 a.m. ET. Economists surveyed by Dow Jones expect the economy grew at a 5.5% annualized pace in the final three months of 2021. Jobless claims are expected to total 265,000 and durable goods are forecast to show a decline 0.6% in December.

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