Here are five things you must know for Thursday, May 4:
1. -- Stock Futures Retreat As Post-Fed Rate Rally Fizzles
U.S. equity moved lower Thursday, easing back from the biggest single-day gain for the S&P 500 in two years, as investors peeled away from a Fed-induced rally and looked to Friday's payroll report for the next major signal for market direction.
The Federal Reserve, as expected boosted its benchmark Fed Funds rate by 50 basis points, to a range of 0.75% to 1%, while detailing the first official plans to reduce its $8.9 trillion balance sheet. Chairman Jerome Powell, however, added a dovish caveat to the decision, suggesting that core inflation may have peaked and that a 75 basis point rate hike is not being "actively considered" by policymakers.
Those comments powered U.S. stocks to impressive end-of-session gains, with the Dow closing 932 points higher and the S&P 500 rallying to its strongest single-day gain since May of 2020.
That momentum provided a solid boost to European shares, which were marked 1.15% higher in early Frankfurt trading, and laid a comfortable runway for the Bank of England, which is widely expected to boost its Bank Rate by 25 basis points, to 1%, in its fourth rate hike in five months later today in London.
Overnight in Asia, modest gain for stock in China adding to the region's bullish session, with the MSCI ex-Japan index rising 0.43% heading into the close of trading,
U.S. stocks, however, aren't following through on yesterday's surge, and with Treasury bonds creeping higher, taking 10-year notes to 2.965%, and the dollar back on the march, rising 0.25% against its global peers to 102.828, investors may be willing to re-assess any dovish take from Powell's post-meeting press conference.
"The market is way too optimistic about the Fed's ability to tame inflation. The Fed is hiking aggressively into a weakening economy," said Nancy Davis, portfolio manager of the Quadratic Interest Rate Volatility and Inflation Hedge Exchange-Traded Fund (IVOL). "They can raise rates as much as they want – rate hikes don’t put more truckers on the roads."
Futures contacts tied to the Dow Jones Industrial Average indicating a solid 140 point opening bell decline while those linked the S&P 500 priced for a 26 point pullback. Futures linked to the tech-focused Nasdaq are looking at a firmer 110 point opening bell slide.
2. -- Fed Chair Powell Concedes Inflation 'Hardship' As Rate Hikes Expected to Slow Growth
The Federal Reserve's biggest rate hike in 22 years, alongside commentary from Chairman Jerome Powell indicating more half-point hikes are being considered in the coming months, should have cemented the most aggressive central bank tightening in a generation late Wednesday.
Instead, even with plans to add to the higher rate environment with the unwinding of the Fed's $8.9 trillion balance sheet, with bonds sales beginning in June and ramping up to around $95 billion a month by the fall, markets rallied hard on Powells' comment that a 75 basis point move isn't being "actively considered" by he and his FOMC colleagues.
However, while the Fed appears to have won back the approval of Wall Street through both its telegraphing of yesterday's rate hike and the rare specificity of plans to use 50 basis point moves in the future, the fact that it's hiking rates into a slowing economy, raising the specter of a near-term recession, was not lost on the Chairman.
In an unusual move prior to his regular question-and-answer session with the media yesterday in Washington, Powell spoke directly to the American public, recognizing the "hardship inflation in causing" and vowing to "expeditiously bring it back down."
"We have both the tools we need and the resolve it will take to restore price stability on behalf of American families and businesses," he said. "The economy and the country have been through a lot over the past two years and have proved resilient. It is essential that we bring inflation down if we are to have a sustained period of strong labor market conditions that benefit all."
3. -- Republican Lawmaker Wants FTC To Preserve Records Linked to Musk and Twitter
Tesla (TSLA) shares moved lower in pre-market trading, with Twitter (TWTR) also in the red and trading firmly under the $50 mark, following a request by Republican lawmaker Jim Jordan that the Federal Trade Commission preserve all of its records related to Elon Musk's planned takeover of the social media group.
Jordan, a senior Congressional lawmaker who also heads the House Judiciary Committee, said he was concerned that FTC Chairperson Lina Khan could be influenced by an attempt by the Open Markets Institute to stop the $44 billion deal. Khan served as legal director of the advocacy group in 2017 and 2018.
The letter suggests that Jordan, who has spoken out in favor of Musk's purchase of Twitter, may be concerned that the FTC's investigation of the billionaire's early stake in the group could be a precursor to blocking the deal.
Tesla shares were marked 1.22% lower in pre-market trading to indicate an opening bell price of $940.00 each while Twitter slipped 0.4% to 48.88 each, around 10% south of Musk's $54.20 per share offer.
4. -- eBay Shares Slump On Muted Outlook For Online Marketplace
eBay (EBAY) shares tumbled in pre-market trading after the online marketplace added to a spate of muted outlooks from consumer-facing tech groups that overshadowed solid first quarter earnings.
eBay said revenues for the three months ending in March fell 17.2% to $2.5 billion, although that tally topped analysts' forecasts and helped the group to an adjusted bottom line of $1.05 per share, 2 cents ahead of the Street consensus forecast.
Active buyers on the platform were down 13% to 42 million, however, and those that remained were spending less: gross merchandise volumes fell 20% to $19.4 billon.
eBay said that post-pandemic trend was likely to continue, forecasting current quarter revenues of between $2.35 and $2.4 billion and adjusted earnings in the region of 87 cents to 97 cents per share, as the impact of Russia's war on Ukraine impacts both sales and consumer confidence in some of its European markets.
eBay shares were marked 6.9% lower in pre-market trading to indicate an opening bell price of $19.58 each.
5. -- Meta Shares Slide On Reports Its Looking to Rein In Costs
Meta Platforms (FB) shares moved lower in pre-market trading amid reports that the social media and metaverse-focused tech group is looking to slow hiring for the remainder of the year as it grapples with surging costs.
Business Insider, as well as other media outlets, reported the plans to reduce hiring, citing a memo to employees.
Meta, which saw a modest rebound in active users on its key Facebook platform that both helped group revenues rise 6.6% to $27.91 billion and offset a $3 billion loss at Reality Labs, the division that will house the company's metaverse plans, is also looking at an operating costs and total expenses bill of around $90 billion, a tally that's up nearly 30% from last year.
Meta Platform shares were marked 1.4% lower in pre-market trading to indicate an opening bell price of $220.44 each.