US stock index futures were slightly higher in overnight trading on Wednesday after the US Federal Reserve made the largest rate hike since 1994.
Futures contracts, which are linked to the Dow Jones Industrial Average, gained 0.22%. S&P 500 futures were up 0.23%, while Nasdaq 100 futures were up 0.29%.
Major moving averages ended Wednesday’s session higher, with the Dow and S&P 500 both suffering five-day losing streaks. The 30-stock benchmark gained about 304 points, or 1%, while the S&P 500 gained 1.46%. The tech-heavy Nasdaq Composite was the relative outperformer, up 2.5%.
The Federal Reserve on Wednesday announced a 75 basis point rate hike that had been widely anticipated by the market.
“Today’s 75 basis point rise is clearly unusually large and I don’t expect moves of this magnitude to be common,” Federal Reserve Chair Jerome Powell said at a news conference following the decision.
Stocks rose after Powell said a 50 or 75 basis point hike at the next meeting in July “appears most likely,” indicating the central bank’s commitment to fighting inflation. However, Powell warned that decisions are made “from meeting to meeting”.
Individual members’ forecasts show that the Fed’s interest rate is now on track to end the year at 3.4%.
“At this point, the market has done much of the Fed’s job of selling off stocks and bonds over the past week – let alone the entire year – so it’s not that surprising that both markets are higher today (stocks and bonds prices higher; bond yields lower) having sold off so much ahead of today’s meeting,” said Chris Zaccarelli, chief investment officer of the Independent Advisor Alliance.
Despite Wednesday’s rebound, the key averages over the past week and month are still lower and remain well below their records.
The S&P 500 and Nasdaq Composite are both in bear market territory, down about 21% and 32%, respectively, from their all-time highs in January and November, respectively. The Dow, meanwhile, is 17% below its all-time intraday high of Jan. 5.
Runaway inflation, at its highest level in 40 years, has weighed on the major averages, as have fears of slowing economic growth and the possibility of a recession.
“The market was very well prepared, even at a late stage,” said Michael Wilson, Morgan Stanley’s chief US equity strategist, after announcing the 75 basis point hike. “There’s relief here,” he noted, before adding that the rate hike won’t solve the inflation problem overnight.
“It also increases the risk of a recession because you frontload rate hikes even faster, and I don’t think it’s going to help the bond market,” he said on CNBC’s Closing Bell Overtime.
Economic data released on Thursday includes weekly jobless numbers, with economists polled by Dow Jones forecasting a print of 220,000. Housing starts will also be released, while Adobe and Kroger will report quarterly updates.