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Stock Futures Slip After Fed-Driven Rally

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U.S. stock futures fell, with technology stocks on track to lead losses after the opening bell, as investors assessed the implications of Fed’s most aggressive tightening of monetary policy in more than two decades. 

Futures for the S&P 500 fell 0.7% Thursday. Contracts for the tech-focused Nasdaq-100 lost 0.9% and futures for the Dow Jones Industrial Average edged down 0.5%. 

The pullback came one day after major U.S. stock indexes soared, with the Dow climbing more than 900 points, its biggest one-day gain since 2020. On Wednesday, central bank officials approved a half-percentage-point interest rate increase, lifting the federal-funds rate to a target range between 0.75% and 1%. But it was Fed Chairman Jerome Powell’s comments that energized markets after he said officials weren’t actively considering raising rates by three-fourths of a percentage point, or 75 basis points, at its June meeting.

Mr. Powell’s comments offered relief to investors who had become increasingly fearful that the Fed could raise interest rates too far, too fast and eventually tip the economy into a recession. 

But by Thursday, investor optimism had begun to wane. Even with a larger interest-rate increase off the table in the coming months, investors are still facing the most aggressive tightening of U.S. monetary policy since 2000—the last time the central bank last raised rates by a half-point. Many investors are now questioning how high the Fed might raise rates over the next two years and how that might ripple across the economy and corporate profits.

On Thursday morning, those jitters were seen across the market. In premarket trading in New York, growth stocks were particularly hard hit. Chip makers Advanced Micro Devices, Nvidia and NXP Semiconductors each lost more than 1.6%. Megacap technology stocks also pulled back, with Tesla falling 1.6% and Netflix declining 1.5%.

Higher interest rates can diminish the allure of technology stocks by reducing the value that investors place on their future earnings. Higher yields in general also boost the attractiveness of fixed-income products versus riskier assets such as stocks. 

Booking Holdings jumped 10% premarket after its revenue exceeded expectations and it said it has seen strengthening of global travel trends in the current quarter. 

Etsy tumbled 11% after the online marketplace released guidance below expectations for the current quarter. 

In the bond market, the yield on the benchmark 10-year Treasury note rose to 2.968%, from 2.914% Wednesday. Bond prices and yields move in opposite directions. On Wednesday, bonds staged a rebound alongside stocks before losing steam.

Traders worked on the floor of the New York Stock Exchange on Wednesday.

Photo: justin lane/Shutterstock

Assets that investors perceive as safer were among those to rally Thursday as money managers looked for havens amid the volatility. The WSJ Dollar Index, which measures the U.S. currency against a basket of 16 others, rose 0.4%. On Wednesday, the index tumbled 0.9%, its largest decline since November 2020. The dollar’s status as the world’s reserve currency makes it a particularly attractive haven for investors. 

Gold prices, another preferred haven, also climbed, rising 1.4% to $1,895 a troy ounce. 

In oil markets, Brent crude, the international benchmark for oil, rose 0.6% to $110.80 a barrel.

Overseas, the pan-continental Stoxx Europe 600 rose 1.4%. Banks, technology stocks and transport companies were among those that rallied. Italian bank UniCredit climbed 6.3% after its revenue came in above analyst expectations. Airbus jumped 8.3% after the plane maker reported an increase in net income and moved to increase production of its bestselling A320 single-aisle airliner.

Shell gained 3.1% after its first-quarter profit grew, boosted by soaring commodity prices. 

In Asia, Hong Kong’s Hang Seng fell 0.4% and the Shanghai Composite rose 0.7%. Markets in Japan were closed for a holiday.

Write to Caitlin McCabe at caitlin.mccabe@wsj.com

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