U.S. stock futures fell as investors rebalanced portfolios ahead of the end of a grueling first half and awaited a gauge of inflation that Federal Reserve officials consider their preferred measure of rising prices.
Futures tied to the S&P 500 dropped 1.4%, a day after indexes finished little changed. Dow Jones Industrial Average futures fell 1.1% while technology-heavy Nasdaq-100 futures lost 1.7%.
VIX, VIXmain rose 5.89% and 3.28%.
The S&P 500 is on course to close out its worst first half of the year since the 1970s, as soaring inflation and rapidly rising interest rates raised the specter of recession. After initially discounting postpandemic inflation as transitory, the Federal Reserve and other global central banks have pivoted to making fighting it with interest-rate increases their most important priority, even if it means halting economic growth.
Comments from Fed Chairman Jerome Powell and European Central Bank President Christine Lagarde to that effect at a conference on Wednesday were setting in and weighing on investors on the final trading day of the quarter, said Jeffrey Halley, senior market analyst at OANDA.
“Powell and Lagarde suggested that they would keep hiking even if their economies slowed to rein in inflation. That raised recession risks,” he said. Meanwhile, institutional investors were adjusting their portfolios on the final trading day of the quarter “making it a choppy day,” he said.
Investors have become increasingly convinced that the pace of rate rises will prompt a recession. About 90% of investors expect the U.S. to enter a recession before the end of 2023, according to a survey by Deutsche Bank published Thursday.
Despite the S&P 500 having tumbled into a bear market—considered a 20% drop from a recent high—72% of investors surveyed expect the S&P 500 to drop to at least 3300 points from its current level of 3818.83 before it can recover.
One reason for that could be that some investors still think many stocks are overvalued following an uninterrupted run-up in valuations over the last two years. “Despite what has happened we still aren’t finding many cheap stocks,” said David Donabedian, chief investment officer of CIBC Private Wealth US, adding that he thinks forecasts for the coming earnings seasons are too optimistic. “The market needs to get more objectively cheap,” he said.
The personal-consumption-expenditures price index, due to be released later Thursday, should offer a broad gauge of whether inflation in the economy is peaking. The index is Fed officials’ preferred measure of rising prices and is likely to influence how aggressively they opt to raise interest rates at future policy meetings.
In bond markets, the yield on the benchmark 10-year U.S. Treasury note fell to 3.058% from 3.091% on Wednesday.
In commodity markets, Brent crude, the international oil benchmark, flicked between gains and losses. It was last down 0.1% at $112.38 a barrel. Gold prices edged down 0.3%.
Overseas, the Stoxx Europe 600 fell 1.9% led by losses among auto makers. Porsche Automobil Holding, Continental, Renault and Volkswagen each fell by more than 5%.
German utility firm Uniper fell more than 14% after scrapping its earnings target for the year as it struggles to replace lost Russian gas supplies, curtailed in the wake of Russia’s invasion of Ukraine.
In Asia, stock markets were mostly lower. In Japan, the Nikkei 225 fell 1.5% while in Hong Kong, the Hang Seng Index weakened by 0.6%. In mainland China, the Shanghai Composite Index was an exception, rising 1.1%.
Hong Kong-listed SenseTime Group saw its shares fall by almost half, wiping out $12 billion in market value after a six-month lockup period that had prevented investors from selling shares ended. The artificial-intelligence firm has been placed on a U.S. investment blacklist.