U.S. stocks on Thursday pointed to open near break-even levels after a slight retreat from a run of records following the Federal Reserve’s message of a faster path of interest-rate increases in 2017.
On Wednesday, the U.S. central bank lifted its key short-term rate to a range of 0.5% to 0.75%, from the previous 0.25% to 0.5%. It is also now planning three rate hikes in 2017, compared with the two hikes it had previously mapped out.
Futures for the Dow Jones Industrial Average YMH7, +0.14% were up by 23 points, or 0.1%, at 19,791.00, in up-and-down trade. S&P 500 index futures ESH7, +0.03% were up by less than a point at 2,252.25, and futures for the Nasdaq-100 NQH7, +0.01% gave up 3 points, or less than 0.1%, at 4,928.
Market reaction to jobless claims and inflation numbers was muted. Weekly initial jobless claims fell by 4,000 to 254,000 last week, reflecting the extremely low level of layoffs taking place in the economy. The Consumer Price Index rose 0.2% last month, driven by rising rents and more expensive gas.
The major indexes ended a volatile session lower on Wednesday, as investors considered the prospect of a faster pace of interest rate increases in 2017 a reason to pull back from the Federal Reserve, led by Chairwoman Janet Yellen. The Dow Jones Industrial Average DJIA, +0.26% dropped 118.5 points, or 0.6%, to 19,792.66. The S&P 500 index SPX, +0.16% fell 18.44 points, or 0.8%, to 2,253.28. The Nasdaq Composite Index COMP, +0.20% relinquished 27.16 points, or 0.5%, to 5,436.67.
While equities pulled back Wednesday, stocks have surged since the presidential election in November. Gains have been attributed to expectations that President-elect Donald Trump’s policy proposals, such as tax cuts and deregulation, will spur economic growth. As a result, the Dow has been stepping closer to the key psychological level of 20,000, and major indexes have been hitting a series of record closes.
After the Fed decision, the “market disregarded Yellen’s view that the shift in the so-called “dot plot’ was small, and not all members actually agree that rates need to rise next year. However, “animal spirits,” unleashed by President-elect Trump, “have won the day,” said Kathleen Brooks, research director at City Index, in a note Thursday.
“The view seems to be that Trump will deliver on his fiscal stimulus promise, the economy will expand sharply, inflation will rise and the Fed will need to hike rates more than currently forecast, but not by enough to lead to a serious stock market sell-off,” she wrote.
Early Thursday, gold prices GCG7, -2.69% dropped more than 2% to levels not seen since February. Assets without a fixed yield such as gold, tend to become less attractive as interest rates rise.
In addition, higher interest rates tend to boost the dollar, which in turn puts pressure on commodities priced in the greenback. The U.S. Dollar Index DXY, +0.70% jumped to a 13-year high on Wednesday after the Fed announcement and continued to gain ground Thursday, rising 1.1% to 102.92. .
Meanwhile, 10-year Treasury yields TMUBMUSD10Y, -0.17% rose to 2.59%, its highest since September 2014.
Some analysts say that higher interest rates and a strong dollar can put a damper on earnings and stock rally.
Economic docket: A flurry of data is on its way, including the Empire state index for December, the Philly Fed index for November and the current-account deficit for the third quarter.
Markit’s flash, or preliminary, purchasing managers index for manufacturing in December comes out at 9:45 a.m. Eastern Time. The forecast is for a reading of 54.1. The home builders’ index for December is due at 10 a.m. Eastern.
Stocks to watch: Yahoo Inc. YHOO, -3.18% was down 2.6% in low, premarket volume after the company disclosed another security breach that could affect more than 1 billion users.
Mondelez International Inc. MDLZ, +3.97% was up 5.2% ahead of the bell, adding to a surge late Wednesday following reports that foods giant Kraft Heinz Co. KHC, +0.88% was considering buying the snack maker whose brands include Oreo and Ritz. Bloomberg late Wednesday reported that Kraft isn’t in talks to purchase Mondelez.
Other markets: European stocks SXXP, +0.40% were up, with bank shares FX7, +1.85% drawn higher. In Asia ADOW, -1.90% stocks finished mostly lower, leaving Hong Kong’s Hang Seng Index HSI, -1.77% down 1.8%.
Oil futures CLF7, -1.37% were up slightly to trade above $51 a barrel.