U.S. stocks struggle for direction ahead of Fed’s interest-rate decision


U.S. stock indexes were trading with small gains or losses in early afternoon trade, following the November producer-price index showing wholesale inflation remained unchanged last month. The big event will be the Federal Reserve’s policy decision, economic forecasts and Chair Jerome Powell’s press conference later in the session.

How stock indexes are trading

  • The Dow Jones Industrial Average
    DJIA
    was up 20 points, or nearly 0.1%, at 36,600.

  • The S&P 500
    SPX
    was 2 points higher, or less than 0.1%, at 4,646

  • The Nasdaq Composite
    COMP
    was flipping between small gains and losses near 14,533, after losing a grip on earlier gains.

On Tuesday, the Dow Jones Industrial Average rose 0.5%, while the S&P 500 increased 0.5% and the Nasdaq Composite gained 0.7%.

What’s driving markets

The S&P 500 and the Nasdaq Composite at midday were fighting to keep a grip on their best levels since early 2022, while the Dow was roughly flat.

Cooling wholesale inflation data earlier in the session boosted hopes that the Federal Reserve may be finished raising borrowing costs, but the day’s big event — a policy update from the U.S. central bank — was still ahead.

“What I expect is that the Fed would love for the market to take some of these [anticipated rate] cuts out,” said Erik Weisman, chief economist at MFS Investment Management, in an interview. “It’s just not consistent with what they want to portray at the moment.”

Fed rate decision: Live coverage of FOMC meeting, dot plot and Powell press conference

Policy makers are expected to keep interest rates unchanged at a range of 5.25% to 5.50%, according to the CME FedWatch Tool. The Federal Open Market Committee will release its policy statement and summary of economic projections at 2 p.m. Eastern time, followed by Fed chair Jerome Powell’s press conference at 2:30 p.m.

Traders expect the Fed’s next move to be at least one interest-rate cut in the first half of 2024, while they have been pricing in a nearly 50% probability that the Fed will deliver its first quarter-point rate cut by May, according to the CME FedWatch Tool.

The European Central Bank and the Bank of England also are due this week to give policy updates.

Weisman at MFS Investment Management said he expects the Fed’s Powell to address easing financing conditions over roughly the past six weeks, with falling 10-year Treasury yields
BX:TMUBMUSD10Y
from a 5% October peak.

“Financial conditions are a lot looser and this is going to demand an explanation,” Weisman said.

Thierry Wizman, global FX and interest rates strategist at Macquarie, expects the Fed’s “dot plot” of potential interest rates to signal two 25-basis-point rate cuts. He also will look for any signs of “dovishness” in the Fed’s statement, either a nod to tighter credit conditions from lenders or the consumer slowdown in the fourth quarter.

See: Fed will try to ‘Keep calm and carry on’ amidst talk of steep rate cuts and recession

“[A]ny mention of potential rate cuts next year would be seized upon, especially since this is not something [to] which the Fed has yet alluded,” said Richard Hunter, head of markets at Interactive Investor. The base case remains that rates will remain higher for longer, until such as victory can be declared in the fight against inflation, he said.

Back in economic data, U.S. wholesale prices were unchanged in November in another sign of gradually easing inflation, the Bureau of Labor Statistics said Wednesday. Economists polled by the Wall Street Journal had forecast a 0.1% increase in the producer-price index.

A separate measure of “core” wholesale prices that strips out volatile food, energy and trade margins edged up 0.1% last month, the government said. Core prices are a better predictor of future inflation trends.

Companies in focus

—Jamie Chisholm contributed

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