Market Snapshot: U.S. stocks modestly lower as crucial Fed rate decision looms


U.S. stocks traded modestly lower at midday Wednesday as traders eyed the difficult choice facing the Federal Reserve to raise its interest rate to fight inflation or pause to quell concerns about banking sector stability.

How are stock indexes trading
  • The S&P 500 SPX, -0.15% was off 6 points, or 0.2%, to 3,996
  • The Dow Jones Industrial Average DJIA, -0.29% went down 67 points, or 0.2%, to 32,493
  • The Nasdaq Composite COMP, +0.05% dropped 6 points, or less than 0.1%, to 11,854

Stocks rose solidly on Tuesday, with the S&P 500 posting its highest close since March 6.

What’s driving markets

Attention is focused on the Federal Reserve’s interest-rate decision, due at 2 p.m. Eastern. Fed Chair Jerome Powell will hold a news conference half an hour later.

Futures markets are pricing in an 86% probability of a 25 basis point hike in the fed-funds rate to a range of 4.75% to 5%, according to CME FedWatch Tool.

However, that high level of conviction belies the intense uncertainty over monetary policy in recent weeks as investors have tried to gauge how the central bank will navigate the need to maintain the battle against inflation, which is still running at three times its 2% target, with a desire not to pile further interest rate pressure on a fragile banking sector.

See: Stock market’s pre-Fed bounce is a good sign but raises the risk of a ‘trap,’ technician says

Matthew Ryan, head of market strategy at Ebury, said he expects the Fed to deliver a 25-basis-point increase in interest rate, though his expectations for today’s Fed meeting have changed dramatically as the banking crisis unraveled.

“Macroeconomic conditions, particularly stubbornly high inflation, a strong jobs market and resilient economic activity data, justify a continuation of the hiking cycle,“ Ryan wrote in emailed comments.

“A rate hike would be a vote of confidence in the U.S. banking system. We think that a Fed decision to leave rates unchanged on Wednesday could have the unintended consequence of spooking investors and exacerbating financial instability as a sign of Fed nervousness,” Ryan said.

See: Fed’s ‘dot plot’ seen diverging from market over future path of interest rates

Fed officials have repeatedly stated their determination in bringing down inflation, while the U.S. government has said the banking system is safe and secure. “A major departure from their [the Fed’s] tightening policy puts those two statements at odds with each other,” said Jason Mountford, stock market analyst at

While the market positioning suggests that a 25-basis-point hike is already largely priced in, the so-called dot-plot, which comes as part of the Summary of Economic Projections and shows where the FOMC expects rates to go, might shape how the markets react.

Back in December when the Fed last issued projections, it put the terminal rate between 5% and 5.25%.

Powell might hint at a potential pause of interest rate hikes in the future and will be looking to gather information from the market reaction, especially on the inflation expectations front, said Brent Schutte, chief investment officer at Northwestern Mutual Wealth Management Company.

“If there is a commentary about potentially pausing [rate hikes], what happens to those inflation expectations, do they rise? If they did, I think the Fed would be worried. If they don’t, I think they’ll take some comfort that the market is kind of on the same page,” said Schutte.

Still, the difficulty of the challenge facing central banks was highlighted by inflation data in the U.K. which showed price rises accelerating again and remaining in double digits. The Bank of England will deliver its rate decision Thursday.

Companies in focus
  • GameStop Corp. GME, +41.10%  shares rallied 38.1% Wednesday, after the specialty retailer reported a surprise quarterly profit and sales that were above Wall Street expectations.
  • Athletic-gear giant Nike Inc. NKE, -3.57% shares slipped 2.1% after the company said it was benefiting from the star power of both younger and older NBA athletes and enthusiasm in its running-shoe segment, but gross margins for its full-year would land at the low end of expectations.
  • Shares of 89bio Inc. ETNB, +23.33%  soared 25.9% after the company said its experimental treatment for nonalcoholic steatohepatitis (NASH) led to NASH resolution compared with placebo in a Phase 2b clinical trial. 
  • Shares of First Republic Bank FRC, -5.07% lost 4.7% after news that the troubled bank reportedly has hired advisers to review its options and manage the crisis.
  • Shares of Ollie’s Bargain Outlet Holdings Inc. OLLI, +8.94%  jumped 8.5% Wednesday after the retailer of closeout merchandise and excess inventory reported better-than-expected fiscal fourth-quarter results and provided an upbeat outlook. 

— Jamie Chisholm contributed to this article

This article was originally published by Read the original article here.

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