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Dow futures drop nearly 300 points, commodities retreat on concern about the Fed removing stimulus

Dow futures drop nearly 300 points, commodities retreat on concern about the Fed removing stimulus

19 Aug 2021

Traders works at the New York Stock Exchange (NYSE), August 4, 2021.

Andrew Kelly | Reuters

Stock futures retreated sharply Thursday as concern grew that the Federal Reserve could remove stimulus this year, slowing an economy hurt by the spread of the Covid delta variant.

Futures on the Dow Jones Industrial Average dropped about 280 points or 0.8%. The Dow tanked by 380 points on Wednesday as the release of meeting minutes from the Fed’s gathering in July showed the central bank has started eyeing tapering its $120 billion in monthly bond purchases before the year-end.

S&P 500 futures shed 0.7% and Nasdaq-100 futures lost 0.6%.

“The minutes reflect a Fed that is prepared to accelerate its taper timeline to perhaps the next few months,” said Sean Bandazian, investment analyst at Cornerstone Wealth. “Both the Fed and market participants learned lessons from the Taper Tantrum. While we expect less of a surprise this time around there is still reason to believe we will see volatility throughout areas of the market with high sensitivity to interest rates.”

WTI crude oil dropped more than 3%, falling around $63, and copper lost more than 3% on concern about global growth without the Fed bond-buying support. The 10-year Treasury yield fell more than 4 basis points to 1.23%. (1 basis point equals 0.01%.)

Goldman Sachs cut its economic growth forecast for the current quarter to 5.5% from 9% Wednesday night, adding to the negative sentiment. The firm also sees higher inflation than expected for the rest of the year.

“The impact of the Delta variant on growth and inflation is proving to be somewhat larger than we expected,” wrote Jan Hatzius, chief economist at Goldman Sachs, in the note. “Spending on dining, travel, and some other services is likely to decline in August, though we expect the drop to be modest and brief. Production is still suffering from supply chain disruptions, especially in the auto industry, and this is likely to mean less inventory rebuild in Q3.”

Stocks closely linked to the economy led losses in the premarket. Steelmaker Nucor lost more than 3%. Oil companies Devon Energy and Occidental Petroleum shed roughly 3% and 4%, respectively. Miner Freeport-McMoRan fell around 4%. General Motors fell about 2%. Reopening plays like airlines and hotels were also lower.

The Fed’s central bankers at their July meeting made plans to pull back the pace of their monthly bond purchases likely before the end of 2021, the minutes released Wednesday afternoon showed.

“Looking ahead, most participants noted that, provided that the economy were to evolve broadly as they anticipated, they judged that it could be appropriate to start reducing the pace of asset purchases this year,” the minutes stated.

The Dow fell more than 1% Wednesday for its worst performance in a month.

Robinhood shares tumbled 10% in premarket trading after its first earnings report as a public company. The app warned investors that its third-quarter results could be affected by a slowdown in trading.

“For the three months ended September 30, 2021, we expect seasonal headwinds and lower trading activity across the industry to result in lower revenues and considerably fewer new funded accounts than in the prior quarter,” the company said in the earnings release.

Nvidia’s stock bucked the trend, rising more than 1% in premarket trading after the chip giant’s quarterly earnings and revenue beat Wall Street estimates amid strong graphics cards sales.

Investors will monitor new jobless claims data due Thursday morning. Economists polled by Dow Jones expect a total of 365,000 in the week ended Aug. 14, slightly below the total of 375,000 in the prior week.

For the week through Wednesday, the Dow and S&P 500 are each down 1.5%. The Nasdaq Composite is lower by 2%.