Here are the most important news, trends and analysis that investors need to start their trading day:
- Wall Street set to drop after a strong Fed-driven relief rally
- Fed hikes rates by 50 basis points but takes bigger increases off the table
- Key data on the labor market is out over the next two days
- Musk secures funding on Twitter bid from investors including Larry Ellison
- EBay, Etsy drop on weak guidance, caught up in an e-commerce reset
1. Wall Street set to drop after a strong Fed-driven relief rally
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U.S. stock futures dropped Thursday, one day after a strong Federal Reserve-driven relief rally pushed Wall Street higher for a third straight session. The Dow Jones Industrial Average rose 932 points, or 2.8%, as Fed Chairman Jerome Powell took a future 75 basis point interest rate increase off the table. The S&P 500 gained nearly 3%. The Nasdaq added about 3.2%. Investors on Wednesday took the Fed's widely expected 50 basis point rate hike in stride.
- The 10-year Treasury yield on Thursday ticked higher, trading around 2.95%. The benchmark yield crossed 3% on Monday, its highest level since late 2018. It also traded above that mark again on Wednesday morning ahead of the conclusion of the Fed's two-day May meeting.
- OPEC+ on Thursday rubber stamped another modest production increase for June after the E.U. outlines a Russian oil ban proposal. However, oil prices still rose more than 1% after the announcement.
2. Fed hikes rates by 50 basis points but takes bigger increases off the table
Following March's 25 basis point rate rise, the first increase in more than three years, the Fed doubled that Wednesday afternoon to fight what Powell later called at his post-meeting news conference "much too high" inflation. The 50 basis point increase was the Fed's biggest rate hike since 2000.
- While ruling out a larger 75 basis point rate rise down the road, Powell said 50 basis point increases were under consideration at the next two meetings in June and July. Hikes are also seen in September, November and December.
- Along with the move higher in rates, central bankers on Wednesday indicated they'll begin reducing asset holdings on the Fed's $9 trillion balance sheet.
3. Key data on the labor market is out over the next two days
The market's sharp rise Wednesday suggested that investors, at least for now, were more convinced the Fed can tame inflation without causing an economic recession. The next two days bring key data on the other pillar of the Fed's dual mandate of fostering price stability and maximum employment.
- The government on Thursday reported first-time jobless claims rose more than expected to 200,000. Friday brings the government's April employment report, and traders will see whether Powell's assertion that "the labor market has continued to strengthen and is extremely tight" holds up.
- Labor productivity fell 7.5% in the first quarter, more than expected and the biggest decline since 1947, according to the latest reading from the government. Unit labor costs at nonfarm businesses increased a greater than expected 11.6% in the first quarter.
4. Musk secures funding on Twitter bid from investors including Larry Ellison
Elon Musk has locked down $7.14 billion in funding from a group of investors that includes Oracle co-founder Larry Ellison and Sequoia Capital to fund his $44 billion deal to take Twitter private, according to a filing Thursday. Saudi investor Prince Alwaleed bin Talal, who had initially opposed the buyout, also agreed to roll his $1.89 billion stake into the deal rather than cashing out, the filing showed. Musk, the CEO of both Tesla and SpaceX, will continue to hold talks with existing shareholders of Twitter, including co-founder and former CEO Jack Dorsey, to contribute shares to the proposed acquisition, the filing showed.
5. EBay, Etsy drop on weak guidance, caught up in an e-commerce reset
Etsy shares sank more than 12% in Thursday's premarket and eBay shares fell 7%, the morning after each online marketplace issued weaker-than-expected forward guidance. Inflation and a return to pre-Covid pandemic shopping habits were among the factors weighing on Etsy and eBay's outlooks. Etsy matched on earnings and beat on revenue. Ebay beat on earnings and revenue.
- After two years of outsized growth for e-commerce companies, investors have been gearing up for a slowdown, especially as the economy continues to reopen and consumers return to stores. Even Amazon, which expanded at a breakneck pace during Covid, hasn't been immune to the e-commerce reset.