By U.S. stocks traded mostly lower Wednesday as traders eyed the difficult choice facing the Federal Reserve of whether to prioritize fighting inflation or banking sector stability.
How are stock indexes trading
The S&P 500
SPX,
-0.17%
gained 0.6 points, or less than 0.1% to around 4,003
The Dow Jones Industrial Average
DJIA,
-0.21%
went down 50 points, or 0.2% to 32,511
The Nasdaq Composite
COMP,
-0.11%
gained 11 points, or 0.1% to 11,871
On Tuesday, the Dow Jones Industrial Average rose 316 points, or 0.98%, to 32561, the S&P 500 increased 51 points, or 1.3%, to 4003, and the Nasdaq Composite gained 185 points, or 1.58%, to 11860.
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 press conference half an hour later.
Futures markets are pricing in an 89% probability of a 25 basis point hike in the fed funds rate to a range of 4.75% to 5%.
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: Fed’s forecasts seen diverging from market over future path of interest rates
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 US 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.
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 Q.ai.
Investors are paying more attention to whether the Fed would comment on its interest rate hike path going forward.
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.
“As inflation remains well above the BoE target, there’s now a stronger case for the BoE to press ahead with a rate hike, even in a period of greater financial market uncertainty,” said Richard Flax, chief investment officer at Moneyfarm.
“It will be interesting to see how the BoE and the Fed consider the dynamics between fighting inflation and managing financial stability. The ECB has already indicated that it sees no contradiction between those two goals,” Flax added.
Companies in focus
GameStop Corp.
GME,
+36.02%
shares rallied almost 40% Wednesday, after the specialty retailer reported a surprise quarterly profit and sales that were above Wall Street expectations.
Athletic-gear giant Nike Inc.
NKE,
-1.91%
shares slipped 1.3% Wednesday 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,
+26.53%
soared close to 30% Wednesday after the company said its experimental treatment for nonalcoholic steatohepatitis (NASH) led to NASH resolution compared to placebo in a Phase 2b clinical trial.
Shares of First Republic Bank
FRC,
-4.69%
gained 0.6% Wednesday 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,
+8.52%
jumped 8% Wednesday after the retailer of closeout merchandise and excess inventory reported better-than-expected fiscal fourth-quarter results and provided an upbeat outlook.
