Major U.S. Index Futures predict a lower open Wednesday, with stocks likely to continue their substantial fall from the previous session. Markets will feel the effects from lingering concerns regarding the outlook for monetary policy and the possibility of the Federal Reserve tightening monetary policy quicker than anticipated.
Lael Brainard’s comments on Tuesday may continue to cause selling pressure, as she predicted that Fed Governor would reduce its balance sheets at a “rapid rate” as soon as May’s meeting.
Trading activity may be slow in the early hours while traders wait for minutes from the Fed’s March meeting.
At 2 p.m., the Fed minutes will be made available. ET to give additional insight into the central bank’s thinking regarding interest rate prospects.
The Fed decided that interest rates would be increased for the first time since December 2018 and forecasts that they will rise to 1.9 percent by the end.
According to many media outlets, the forecast predicted six quarter-point rate rises this year. Fed officials suggested recently that the central bank could raise rates by 50 basis point at its next meeting.
CME Group’s FedWatch tool shows that there is a 76.6% likelihood that the Fed will raise rates by 50 basis points next month.
On Tuesday, the stock market fell more than it had in the previous sessions. This was contrary to the positive movement in the past sessions. All major averages were down, but Nasdaq, a tech-heavy stock market, posted a large loss.
In the last hour, the selling pressure increased pushing major averages to new bottoms. The Nasdaq dropped 328.39 points, or 2.3 percent, to 14,204.17. Meanwhile, the S&P 500 plunged 1.3 percent, or 57.52, to 4,525.12. The Dow fell 280.70%, or 0.8%, to 34.641.18.
Wall Street’s weakness shows renewed concern about the outlook of Monetary Policy in light of Brainard’s comments.
Brainard claimed that inflation was too high at a Minneapolis Fed Conference. Brainard predicted that the Fed would reduce its balance sheet “rapidly” at its May meeting.
Brainard stated that the recovery was stronger and more rapid than in previous cycles. Therefore, I expect that the imbalance sheet will shrink significantly faster than it did in the last recovery.
She said, “The balance sheet reduction will contribute towards monetary policy tightening above and beyond the expected increases in policy rate reflected market pricing and the Committee’s Summary of Economic Projections.”
According to the Institute for Supply Management, U.S. growth was accelerated in the service sector in March.
According to ISM’s services PMI, it rose to 58.3 from 56.5 in February. This sector is experiencing growth if the reading is above 50. Economists predicted that the index would rise to 58.0.
After a record November, three consecutive months of declines were recorded by the index. Following a series of declines, the PMI services rose slightly more than anticipated.
A separate report by the Commerce Department showed that the U.S. trade deficit was nearly unchanged in February, as both imports grew and exports decreased.
Semiconductor stocks plunged sharply after a strong Monday performance. The Philadelphia Semiconductor Index experienced a drop of 4.5 percent.
The Philadelphia Oil Service Index plunged 3.1 percent, indicating a significant weakness in oil service stocks.
The sell-off was caused by oil service stocks. The session saw a significant drop in crude oil’s price. The crude oil price for May delivery fell from $101.96 per barrel to $1.32
Computer hardware stocks experienced significant weakness, dragging down NYSE Arca Computer Hardware Index by 3 percent.
It was notable that there was also movement in gold, steel, networking stocks, and housing. Some strength was however evident in utilities and pharmaceutical stocks.