Market Snapshot: U.S. stocks drift after Powell talk, with inflation data and earnings on horizon


U.S. stocks are drifting between positive and negative territory on Tuesday as investors try to find a foothold, amid talk of tighter Federal Reserve policy and anticipation for earnings and inflation data out later this week.

How stocks are trading
  • The S&P 500 SPX, -0.01% is up 4 points, or 0.1%, to 3896
  • The Dow Jones Industrial Average DJIA, +0.03% rose 63 points, nearly 0.2%, to 33581
  • The Nasdaq Composite COMP, +2.68% is up 20 points, or 0%, to 10655

On Monday, the Dow Jones Industrial Average DJIA, +0.03% fell 113 points, or 0.34%, to 33518, the S&P 500 SPX, -0.01% declined 3 points, or 0.08%, to 3892, and the Nasdaq Composite COMP, +2.68% gained 66 points, or 0.63%, to 10636.

What’s driving markets

Investor sentiment continues to be dominated by expectations of tighter Federal Reserve monetary policy, but if traders were hoping for more clues about what’s next for a key interest rate from Federal Reserve Chair Jerome Powell, they didn’t get it.

Speaking Tuesday at an international syposium in Sweden, Powell emphasized the importance of central bank independence.

“Restoring price stability when inflation is high can require measures that are not popular in the short term as we raise interest rates to slow the economy,” Powell said in prepared remarks that emphasized the Fed is not “a climate-policy maker.”

But Powell didn’t broach interest rate policy or the outlook for economy. He was “essentially silent” on the topics in his Tuesday remarks, said Bill Adams, Comerica Bank’s chief economist.

“His choice might reflect this awareness the economy is changing rapidly,” which makes it tough to nail down what’s next for interest rates, said Adams. The economy keeps offering more slowing signs, backed by more data Tuesday, Adams said.

A day earlier, a 300 point gain for the Dow was wiped out and then some on Monday after two Fed officials, San Francisco Fed President Mary Daly and Atlanta Fed President Raphael Bostic, said they thought the central bank will need to raise interest rates above 5%.

The comments meant the Fed was yet again looking to push back against market expectations that it would start trimming borrowing costs later this year, which were bolstered by a December labor market report last week that showed wage inflation slowing.

“The euphoria around Friday’s jobs data faded on Monday, when Fed officials came up and said that the Fed rates will go above the 5% level and stay there for some time,” wrote Ipek Ozkardeskaya, senior analyst at Swissquote Bank in a morning bulletin.

“Sounds familiar? Yes, it does, because the Fed officials have been saying that they will push the rates above 5% and keep them there for a long time to make sure that inflation is on a solid path toward the 2% target,” she added.

Apart from Powell’s speech, it’s a thin day for economic data, with wholesale inventories. The numbers showed wholesale inventories climbing 1% in November as companies filled inventory ahead of the holidays. Meanwhile, sales fell 0.6%.

Also Tuesday, one gauge on small business optimism in December dropped lower than economists expected. “The data out this morning are secondary indicators, but they do show the economy continues to weaken in the fourth quarter,” Adams said.

Later in the week, investors are waiting for the U.S. consumer price index report on Thursday and the start of the fourth quarter company earnings reporting season on Friday.

Mark Newton, head of technical strategy at Fundstrat, said that the market’s reversal on Monday indicated the latest rally would fail and stocks this week would start heading back to the December 2022 lows.

“While Monday’s technology strength was seen as a positive for one-day performance out of this sector, Treasury yields and the U.S. dollar are right near support, and likely start to turn back higher over the next couple weeks. Overall, key areas to focus on lie near 3950-70 for SPX as resistance, and 3794-3800 as support…Any violation of 3794 should bring about a pullback to test and fractionally break 3700 before lows are in place for January,” Newton concluded.

Companies in focus
  • Virgin Orbit Holdings shares are down after its rocket attempting the first space launch from British soil did not reach orbit. “An anomaly” stood in the way of the final destination, Virgin Orbit said in a tweet. Virgin Orbit Holdings VORB, -9.40% shares are off more than 11% at the start of the session.
  • Bed Bath & Beyond Inc. third quarter earnings came in below estimates while the decline in same-store sales, a 32% drop, was sharper than the FactSet consensus for a decline of 25.9%. Bed Bath & Beyond BBBY, +19.02% shares are up more than 24% in trading Tuesday.
  • Coinbase announced it is cutting 950 jobs in a belt-tightening move to address costs in the roughed up sector of crypto. Trimming personnel will cost the crypto exchange up to $163 million between severance and stock compensation costs, the company said. Coinbase COIN, +5.28% shares are up more than 4% near the start of Tuesday’s trading.

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