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U.S. stock futures edged lower and a selloff in government bonds continued, as investors assessed the latest sign that the Federal Reserve will move to tighten monetary policy more quickly than it has in the recent past. 

Futures for the S&P 500 ticked down 0.4% Friday, while those for the technology-heavy Nasdaq-100 also lost 0.4%. Contracts for the Dow Jones Industrial Average declined 0.3%. On Thursday, major U.S. stock indexes finished with losses, with the Nasdaq Composite falling 2.1%, as the yield on the 10-year U.S. Treasury note jumped to its highest level since December 2018.

In early Friday trading, the steep rally in government bond yields persisted, sending the yield on the benchmark 10-year Treasury note to 2.938%, up from 2.917% Thursday. Yields rise when bond prices decline.

Investors are confronting one of the most uncertain periods of their lifetimes as they try to assess the impact that rising rates will have on stocks. For two years, traders have continued to pile into the U.S. stock market, owing, in part, to unprecedented levels of monetary stimulus that left few alternatives for consistently strong returns. In recent months, however, investors have had to reassess their playbooks as the Fed has embarked on a monetary tightening cycle.

On Thursday, Fed Chairman Jerome Powell gave investors a clear signal that the central bank will be accelerating the pace at which it tightens monetary policy. He indicated it was likely to raise interest rates by a half-percentage point at its meeting in May. A rate increase next month, following the Fed’s quarter percentage point increase in March, would mark the first time since 2006 that the central bank increased its policy rate at back-to-back meetings.

Mr. Powell’s comments injected fresh volatility into a fragile stock market that has been whipsawed this year by the war in Ukraine, soaring inflation and rising Covid-19 cases in China. Many traders are now worried that the Fed’s tightening cycle could tip the economy into a recession at a time when consumers are already feeling uneasy about the economy. Next week, investors will parse fresh figures from The University of Michigan on consumer sentiment in April. 

On Friday, data in the U.K. from the Office for National Statistics showed signs of consumer skittishness. U.K. retail sales volumes fell sharply last month, weakening by 1.4%. That sent the British pound falling 1.2% against the dollar to its lowest level since 2020. London’s FTSE 100 stock index fell 0.8%.

“I think what you’re seeing is consumers are becoming much more hesitant,” said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown. “It’s a tricky tightrope that central-bank policy makers are having to tread right now. They need to put a lid on that boiling pot of inflation but they don’t want steam to be driven out of the economy completely.”

Still, for now, investors have been encouraged by strong first-quarter earnings. Of the companies that have reported so far, nearly 80% have beat analyst expectations. That has helped provide some stability to the U.S. stock market. Even with Thursday’s losses, the Dow Jones Industrial Average is currently on pace to end the week with a 1% gain.

Stocks on Wall Street declined on Thursday after Federal Reserve Chairman Jerome Powell signaled the central bank would raise interest rates by a half-percentage point at its next meeting.

Photo: Courtney Crow/Associated Press

In premarket trading in New York, shares of airlines rose. United Airlines Holdings added 1.2% and American Airlines Group gained 0.8%. On Thursday, American said its sales hit a record in March, the first month since the pandemic began in which the airline’s total revenue surpassed 2019 levels.

Later Friday morning, investors will parse earnings from companies including Kimberly-Clark for clues about how companies are managing supply-chain snarls and inflation.

In commodities, Brent crude, the international benchmark for oil, fell 1.7% to $106.16 a barrel. 

In the currency markets, the ICE U.S. Dollar Index, which tracks the currency against a basket of others, gained 0.4%, on pace to notch a gain for the week. Including Friday, the index has climbed for all but two sessions in April, thanks to geopolitical concerns and looming interest-rate increases by the Fed.

In overseas markets, the pan-continental Stoxx Europe 600 fell 1.4%. In Asia, Hong Kong’s Hang Seng lost 0.2% and Japan’s Nikkei 225 fell 1.6%. The Shanghai Composite, in contrast, bucked the trend, rising 0.2%.

Write to Caitlin McCabe at [email protected]

Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

Source: WSJ

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