By Lisa Pauline Mattackal and Johann M Cherian
(Reuters) – U.S. stock index futures retreated on Friday, with the S&P 500 and the Nasdaq pulling back after consecutive record highs as investors weighed hawkish Federal Reserve projections against the backdrop of a cooling economy.
The S&P 500 and the Nasdaq notched record closing highs for the fourth consecutive session on Thursday, as technology shares rallied. The S&P 500 information technology sector also closed at a record high for the fourth straight time.
Data earlier in the week showed inflation pressures softened in May, while another report said the number of Americans filing new claims for unemployment benefits increased last week to a 10-month high. That helped keep alive hopes for a forthcoming interest rate cut by the Fed.
However, the central bank on Wednesday dialed back its projections for three cuts this year to just one.
Markets, however, seemed undeterred so far – CME’s FedWatch tool shows an over 72% chance of a cut in September, while interest rate traders are pricing in about two cuts by year-end.
“The FOMC remains in wait-and-see mode as the committee continues to seek slower inflation data that instills ‘greater confidence’ that annual price growth is firmly on the trajectory back to 2%,” analysts at Wells Fargo said in a note.
“It will be a close call between one or two 25 bps rate cuts this year, and the Committee seems evenly split between the two outcomes.”
A rally in chip stocks, led by Broadcom, helped lift the semiconductor index to an all-time high on Thursday. The chipmaker was flat in premarket trading, while peers Nvidia and Micron slipped 0.4% and 0.8%.
Futures tracking the small-cap Russell 2000 slipped 1.6%, while Dow futures were firmly in the red after the index closed lower on Thursday.
Hopes of easing Fed policy, combined with megacaps strength, have seen major indexes rally, with the S&P 500 and the Nasdaq on pace for their seventh week in gains out of eight.
However, this has raised some concerns about the sustainability of equity strength, with the blue-chip Dow on track to end the week slightly lower.
A BofA Global Research report also showed the appeal of megacap growth stocks, as U.S. value stock funds saw $2.6 billion of outflows, while investors poured $1.8 billion into U.S. growth stock funds in the week to Wednesday.
Investors will also eye comments from Chicago Fed President Austan Goolsbee and Fed Governor Lisa Cook later on Friday, as well as the University of Michigan’s Consumer Sentiment survey for June.
At 7:11 a.m. ET, Dow e-minis were down 328 points, or 0.85%, S&P 500 e-minis were down 32 points, or 0.59%, and Nasdaq 100 e-minis were down 65.75 points, or 0.34%.
Among others, Adobe jumped 14.0% after the company raised its annual revenue forecast on more demand for its artificial intelligence-powered software.
Sirius XM slipped 2.0% after the Nasdaq said the stock would be removed from the Nasdaq 100 index, and replaced with Arm Holdings. Shares of Arm rose 0.4%.
(Reporting by Lisa Mattackal and Johann M Cherian in Bengaluru; Editing by Maju Samuel)