Wall St eyes mixed open as tech stocks still weak, banks rally

© Reuters. FILE PHOTO: The Wall Street sign is seen in front of the New York Stock Exchange January 22, 2008. REUTERS/Chip East

By Devik Jain

(Reuters) - U.S. stock indexes were set for a mixed open on Thursday, with banking and energy shares leading gains, while interest rate-sensitive growth names remained under pressure from the Federal Reserve's hawkish signals.

The Dow slipped from an intra-day record high after minutes from the Fed's December meeting signaled the possibility of sooner-than-expected rate hikes and stimulus withdrawal to curb inflation.

The tech-heavy Nasdaq plunged more than 3% on Wednesday, its biggest one-day percentage drop since February.

"The hawkish tone of the FOMC (the Federal Open Market Committee) minutes suggests that the central bank is concerned about inflation," said Nancy Davis, founder of Quadratic Capital Management.

"We believe the Fed is likely to be more prudent and take longer than the market expects to evaluate the economy before embarking on a swift rate hiking cycle and balance sheet reduction plan."

So far this week, market participants have rotated out of technology-heavy growth shares and into cyclical names such as industrials, energy and materials that stand to benefit the most in a high interest rate environment.

The U.S. 10-year Treasury yield, the benchmark for global borrowing costs, touched its highest level since April 2021 on Thursday. [US/]

Shares of major Wall Street lenders were up nearly 1% each in premarket trading. Occidental Petroleum (NYSE:OXY) added 2.9%, leading gains among oil companies.

The S&P 500 energy sector has gained 6.6% so far this week, tracking its best weekly performance since late August 2021.

Growth companies including Microsoft Corp (NASDAQ:MSFT), Amazon.com (NASDAQ:AMZN), Apple Inc (NASDAQ:AAPL) and Tesla (NASDAQ:TSLA) Inc fell between 0.4% and 1.2%.

"Tech stocks have got more of their earnings power coming but they're much more sensitive to a higher discount rate," said Dave Grecsek, managing director in investment strategy and research at Aspiriant.

"We've barbelled our equity position, so we like the more cyclically-sensitive equities in the U.S. ... these would be stocks like the traditional financials, industrials and staples that have room to run."

At 8:42 a.m. ET, Dow e-minis were up 85 points, or 0.23%, S&P 500 e-minis were down 1.25 points, or 0.03%, and Nasdaq 100 e-minis were down 77.75 points, or 0.49%.

After a stronger-than-expected ADP private payrolls report on Wednesday, the Labor Department's more comprehensive nonfarm payrolls data for December will be closely watched on Friday.

"With the jobs report around the corner, the atmosphere across the board could become tense and nervy as investors adopt a cautious stance," said Lukman Otunuga, senior research analyst at FXTM.

"Should the jobs report exceed market expectations, this is likely to boost confidence in the U.S. economy and reinforce expectations that the Fed will raise interest rates in the Spring."

Meanwhile, data showed the number of Americans filing new claims for unemployment benefits rose last week.

Netflix Inc (NASDAQ:NFLX) slipped 1.9% after J.P. Morgan cut its price target on the movie streaming platform's stock.

Walgreens Boots Alliance (NASDAQ:WBA) Inc jumped 4.1% after the U.S. pharmacy major raised its full-year adjusted profit growth forecast on strong demand for COVID-19 vaccinations and testing.