U.S. stock indexes looked set to open lower on Wednesday as investors worried the Federal Reserve would keep hiking interest rates this year, while Microsoft rose after laying out its AI push.
Fed Chair Jerome Powell said on Tuesday he expects “significant declines in inflation” in 2023, but acknowledged that the battle against inflation will take quite a bit of time and that interest rates may need to move higher than expected.
Money market participants are now betting the U.S. central bank’s benchmark rate to rise above 5% in May before peaking to 5.14% by July, levels that officials have backed vociferously.
“I could understand the market being weak… with the Fed funds futures implying more rates moving forward than they were before last Friday and before yesterday’s speech,” said Thomas Hayes, chairman at Great Hill Capital Llc.
Powell’s comments came after a strong jobs report on Friday that stymied expectations of rate cuts any time this year and could test the solid start to 2023 for U.S. equities following last year’s battering.
Microsoft Corp (MSFT.O) climbed 0.9% in premarket trading after the tech giant said it was revamping its Bing search engine and Edge Web browser with artificial intelligence.
Traders will closely monitor comments from a slew of Fed officials later in the day for more hints on the central bank’s path of future interest rate hikes.
At 8:45 a.m. ET, Dow e-minis were down 120 points, or 0.35%, S&P 500 e-minis were down 20.75 points, or 0.5%, and Nasdaq 100 e-minis were down 62.5 points, or 0.49%.
President Joe Biden‘s comments at the State of the Union Address on Tuesday evening that supported calls to tax corporate share buybacks also weighed on the mood.
“(The taxes) would not be a positive for the market because that would be a deterrent for companies to buy back stocks and so a headwind to the stock market,” Hayes added.
Halfway into earnings season, of all the S&P 500 companies that have reported quarterly earnings, 69% of them have beaten expectations, according to Refinitiv. Still, analysts expect fourth-quarter earnings to decline 2.9%.
Activision Blizzard(ATVI.O) slid 3.4% after UK’s antitrust regulator said Microsoft’s (MSFT.O) purchase of the “Call of Duty” maker raised competition concerns about cloud and console gaming.
Uber Technologies Inc(UBER.N) and Under Armour Inc(UAA.N) surged about 7% after issuing earnings expectations for the year.