Higher Interest Rate Impacts US Stock Futures

UTC by Ibukun Ogundare · 3 min read
Higher Interest Rate Impacts US Stock Futures
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The third consecutive 0.75 percent point increase announced by the Federal Reserve has impacted stocks across different sectors.

Stock futures plunged as traders weighed another large interest rate hike from the US Federal Reserve. Despite crypto-linked stocks rallying on the higher interest rate, US stock futures fell with Dow Jones Industrial Average futures, which declined 109 points or 0.36%. The S&P 500 also dropped 0.56 while Nasdaq 100 futures shed 0.79%.

US Stock Futures at Their Lows on Another Interest Rate Hike

The stock futures also slid during the regular session on Wednesday after the announcement on the interest rate. After rising over 300 points earlier in the day, the Dow Jones Industrial Average lost 522 points or 1.70%. Similarly, the S&P 500 missed 1.71%, and the Nasdaq Composite shrank 1.79%. All primary S&P 500 sectors finished the session at their lows as travel and entertainment stocks also had their share of the decline. The same goes for tech giants like Apple (NASDAQ: AAPL), Amazon (NASDAQ: AMZN), and Meta Platforms (NASDAQ: META).

The third consecutive 0.75 percent point increase announced by the Federal Reserve has impacted stocks across different sectors. Fed Chair Jerome Powell spoke about the current situation in his speech after the Federal Reserve Open Market Committee (FOMC) meetings. He explained:

“Restoring price stability is essential to set the stage for achieving maximum employment and stable prices over the longer run. We will keep at it until we are confident the job is done.”

Economists are beginning to ask questions about the terminal rate, which is supposed to indicate the level at which the interest rates will peak before the Feds stop upping the interest rate. Meanwhile, policymakers pledged to continue to raise rates as high as 4.% in 2023 in order to tackle inflation. As it is, words on the Wall Stress speak of possible economic recession. As the central bank expects to raise its year-end rate to 4.4% in 2022, analysts think the Feds should take a chill pill.

Speaking on CNBC’s “Closing Bell: Overtime” on Wednesday, Jeffery Gundlach, the CEO of DoubleLine Capital stated:

“I think they [Feds] should slow down. Monetary policy has lags that are long and variable, but we’ve been tightening now for a while.”

VIX Futures

Furthermore, he added that the impact of the tightening could cause a recession. Already, the futures linked to Wall Street’s fear gauge signaled intense selling pressure in markets. The October VIX futures surged 0.28 points above the November futures on Wednesday. The addition represented the widest margins since mid-June recorded after Wall Street’s indexes sold off in reaction to a 75% basis point interest rate hike by the US Federal Reserve. Co-head of derivatives strategy at Susquehanna International Group Chris Murphy said that “it’s usually a sign all the risk is being pulled into the here and the now”. “That’s why often we will look at it as a capitulation indicator,” said he.

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