The logo for the New York Stock Exchange (NYSE) is displayed on Wall Street in New York City, U.S., March 22, 2022.
The logo for the New York Stock Exchange (NYSE) is displayed on Wall Street in New York City, U.S., March 22, 2022. Reuters / BRENDAN MCDERMID

U.S. stock indexes were set to fall on Wednesday after megacap shares fueled a strong rally on Wall Street a day earlier, as investors assessed the outlook for U.S. interest rates following calls from Federal Reserve policymakers for bigger increases.

The hawkish pivot was in line with Chair Jerome Powell's comments on Monday and came just a week after the U.S. central bank raised interest rates for the first time since 2018.

Traders now see the federal funds rate rising to the 2.25%-2.5% range by year-end, higher than the 1.9% suggested by Fed forecasts last week, raising concerns that a sharp rise in rates over a short period of time could hurt economic growth.

"There's very high inflation ... the risk of a policy mistake where the Fed tightens too aggressively and ends up pushing the economy into recession is growing," said Andrea Cicione, head of strategy at TS Lombard.

"But what we are seeing right now is that the market is pricing in even more hikes than it was at the beginning of the year. Equity investors are taking the view that ... the Fed is so hawkish is a vote of confidence in the resilience of the U.S. economy."

Big banks edged lower in premarket trading, with Bank of America <BAC.N> down 0.2% after rallying sharply in the previous session.

The tech-heavy Nasdaq ended 2% higher on Tuesday, as shares of technology and other big growth names extended a rebound.

"Stock futures are down today on a combination of some profit taking from yesterday's jump but also because oil prices are slightly higher. Investors are looking at the market and trading more from a short-term perspective," said Sam Stovall, chief investment strategist of CFRA Research in New York.

Tesla Inc fell 1.3% to lead losses among the megacap growth companies. The stock had climbed about 8% in the previous session after the electric-car maker handed over its first German-made cars at the company's Gruenheide plant.

Energy stocks, the best-performing S&P sector so far this year, resumed their march higher after taking a breather on Tuesday. Occidental Petroleum led the gains, up 3.2%, as Brent crude climbed above $117 a barrel on increasing supply concerns due to sanctions on Russian oil products. [O/R]

U.S. President Joe Biden headed to Europe on Wednesday for an emergency NATO summit on Ukraine, where invading Russian troops are stalled, cities are under bombardment and the besieged port of Mariupol is in flames.

At 8:24 a.m. ET, Dow e-minis were down 121 points, or 0.35%, S&P 500 e-minis were down 19.25 points, or 0.43%, and Nasdaq 100 e-minis were down 105 points, or 0.72%.

GameStop Corp, which was at the heart of the meme stocks rally last year, jumped 10% after Chairman Ryan Cohen's investment company bought 100,000 shares of the videogame retailer.

Adobe Inc slipped 3.2% after it forecast downbeat second-quarter revenue and profit and warned of a hit to its digital media business in Ukraine.