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Market Snapshot: Dow drops over 700 points as stocks slide on fears higher costs are eroding profits

U.S. stock index futures slipped Wednesday, a day after a bounce as investors reconsidered hawkish comments from Federal Reserve Chairman Jerome Powell.

S&P 500 futures

fell 0.4% to 4,065.75

Dow Jones Industrial Average futures

fell 86 points, or 0.2%, to 32,492

Nadsaq 100 futures

fell 0.7%, to 12,469

On Tuesday, the Dow industrials

jumped 431.17 points, or 1.3% to 32,654.59, a third straight day of gains. The S&P 500 

climbed 2% to 4,088.85, and the Nasdaq Composite 

jumped 2.8%, to end at 11,984.52.

What’s driving the markets?

Investors were taking a fresh look at comments from Fed Chairman Powell, who on Tuesday spoke of possible “pain” for Americans as the central bank moves resolutely to bring down inflation by raising interest rates. He was speaking at The Wall Street Journal’s Future of Everything event. 

“Powell’s words didn’t hit the investor appetite immediately. Nasdaq rallied more than 2.50% yesterday, as the S&P 500 rebounded 2%. But mixed activity in U.S. futures hint that appetite may not remain as strong in the coming sessions,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank, in a note to clients. 

Stocks got a lift on Tuesday from better-than-expected U.S.retail sales data, as well as optimism over China’s fight against COVID and signs of easing lockdowns. Michael O’Rourke, chief market strategist at JonesTrading, pointed to another possible factor behind Tuesday’s rise —- a Bloomberg report discussing possibly bullish stock options activity.

“Investors who have reduced exposure are adding upside protection hedges with index ETF call options,” O’Rourke told clients in a note. The put-to-call ratio for the $361 billion SPDR S&P 500 ETF Trust ETF (ticker SPY) recently hit a two-year low, based on open contracts, that report said.

A low put-to-call ratio is considered a bullish indicator for markets. He said the story also noted a 2008 high for outstanding call options for the $163 billion Invesco QQQ Trust Series 1 ETF
A call option gives investors the right to buy an asset at a specific time, and an abundance means increased interest in buying.

But against a backdrop of Powell’s comments and disappointment from retailing giant Walmart
O’Rourke remains wary. “One can’t help to think that days like today are simply setting investors up for the next disappointment,” he said.

Shares of Target Corp.

tumbled 20% in premarket trading Wednesday after the retailer reported earnings that fell far short of expectations. Shares of Lowe’s Cos.

fell on mixed results from the home-improvement retailer. TJX Cos.

earnings are still ahead Wednesday and Cisco Systems Inc.

will report after the close.

Read: Fund managers’ cash pile is the biggest since 2001, says Bank of America

The U.S. economic calendar is light for Wednesday, with building permits and housing starts for April due at 8:30 a.m. Eastern, followed by comments from Philadelphia Fed President Patrick Harker, expected at 4 p.m. Eastern Time.

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