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Traders react as Federal Reserve Chair Jerome Powell is seen delivering remarks on a screen, on the floor of the New York Stock Exchange (NYSE), May 3, 2023.
Brendan McDermid | Reuters
Stock futures fell after the Federal Reserve hiked rates by another 25 basis points and investors’ fears of contagion in the regional bank space returned.
Futures linked to the S&P 500 shed 0.5%. Nasdaq 100 futures declined 0.25%, and futures linked to the Dow Jones Industrial Average dropped 152 points, or 0.45%.
Shares of PacWest tanked by more than 50% in after-hours trading. The decline came after Bloomberg, citing people familiar, reported that the California bank has been assessing strategic options, including a break up or a possible sale. Regional bank shares sold off hard, with Western Alliance tumbling nearly 30%, Zions Bancorporation dropping nearly 12%, and Valley National Bancorp shedding 12.5%.
There likely won’t be a respite for the embattled regional banking sector until the Fed cuts interest rates, said Jeffrey Gundlach, co-founder and CEO of DoubleLine. Since the closure of Silicon Valley Bank in March, First Republic has joined the ranks of failed institutions and was recently taken over by JPMorgan Chase.
“Leaving rates this high is going to continue this stress,” Gundlach said on CNBC’s “Closing Bell” Wednesday. “I believe with a very high degree of probability there’s going to be further regional bank failures.”
Indeed, as the Fed pushed through its 10th rate hike in this cycle and the central bank seemed to soften its language on future rate hikes, Chair Jerome Powell said that it may be too soon to cut rates.
“We on the committee have a view that inflation is going to come down not so quickly,” he said in his post-meeting press conference. “It will take some time, and in that world, if that forecast is broadly right, it would not be appropriate to cut rates and we won’t cut rates.”
Stocks closed lower on Wednesday, with the Dow shedding 270 points, or 0.8%, and the S&P 500 dropping 0.7%. The Nasdaq Composite lost roughly 0.5%.
Looming ahead are key economic reports that will inform the Fed’s next steps from here. Initial jobless claims are due Thursday. Friday’s main event will be April’s payrolls report, which economists polled by Dow Jones predict will rise by 180,000.
In terms of earnings, investors will be watching Moderna, which issues results before the opening bell Thursday. Apple is slated to post earnings after the market’s close, along with Lyft, DraftKings and Coinbase.
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