Wall Street traders bracing for a Federal Reserve rate hike on Wednesday sent stocks lower on speculation Jerome Powell will signal another increase this year isn’t entirely off the cards.
(Bloomberg) — Wall Street traders bracing for a Federal Reserve rate hike on Wednesday sent stocks lower on speculation Jerome Powell will signal another increase this year isn’t entirely off the cards.
After a widely expected 25-basis-point boost in July, the swap market is currently projecting a 52% chance of a move of that same magnitude before the year is over. Whether or not that will materialize is yet to be seen, but many analysts predict the Fed will at least keep its options open after raising borrowing costs to the highest level in 22 years.
To Andrew Brenner at NatAlliance Securities, Powell has no choice but to sound hawkish. He can’t sound dovish because policymakers are “paranoid of making a 1981 type of mistake” when they took their foot off the brake prematurely.
“The Fed should not signal another skip in September, as doing so for the June meeting really handcuffed the Fed at a time when it needed maximum flexibility,” said Win Thin at Brown Brothers Harriman. “Given how firm the labor market remains, we believe the right thing for the Fed to do is to emphasize a more data-dependent approach and stress that a skip in September should not be assumed.”
The S&P 500 dropped from the highest level since April 2022, the tech-heavy Nasdaq 100 underperformed and Dow Jones Industrial Average wavered. If the blue-chip gauge closes higher, it will be its 13th straight gain — the longest winning run since 1987. Two-year US yields were little changed at 4.88%. The dollar fluctuated. West Texas Intermediate crude traded near $79 a barrel while copper fell alongside industrial metals.
Big Tech Earnings
Another driver of trading Wednesday was the large batch of earnings reports, with results from big tech being highly scrutinized after the shares notched a historic advance in the first six months of the year.
Google parent Alphabet Inc. hit a 15-month high as revenue beat expectations, while Microsoft Corp. fell the most since January on a tepid sales growth and Texas Instruments Inc.’s lukewarm forecast weighed on chipmakers. Traders also awaited results from Facebook owner Meta Platforms Inc. after the closing bell. The social media giant goes into its second-quarter earnings report with a relatively inexpensive valuation that could provide a cushion against any minor misses.
“Big tech earnings have been very Darwinian, and investors are only rewarding the companies that truly post strong results,” David Bahnsen, chief investment officer at the Bahnsen Group. “After extreme gains so far this year in big tech stocks, we have now moved to a phase where each company’s stock price is very non-correlated to one another.”
Meantime, Wall Street’s main regulator is unveiling proposed restrictions for brokerages and money managers that use artificial intelligence to interact with clients.
The US Securities and Exchange Commission is releasing a plan on Wednesday to root out what Chair Gary Gensler has said are conflicts of interest that can arise when financial firms adopt the technologies. The agency will also consider whether to adopt final rules requiring companies to disclose serious cybersecurity incidents within four business days after they’re deemed significant.
Corporate Highlights
- Boeing Co. rose after generating $2.58 billion in free cash flow in the second quarter, far exceeding expectations, amid a flurry of jet deliveries.
- Regional banks climbed as news that PacWest Bancorp is being bought by Banc of California bolstered confidence in the industry. Wells Fargo & Co. paced gains in larger lenders on plans to repurchase as much as $30 billion of its shares.
- Rail giant Union Pacific Corp. advanced after appointing Jim Vena as its new chief executive officer. Retailer Gap Inc. gained after naming Mattel Inc.’s Richard Dickson as its next CEO.
- Snap Inc. fell after projecting revenue at the lower end of analysts’ estimates for this quarter, signaling that improvements to the digital advertising business are taking longer than expected to pay off.
- Coca-Cola Co. raised its full-year guidance after second-quarter results show continued momentum and consumer willingness to pay higher prices to quench their thirst with the company’s sugary sodas, fruit juices and sports drinks.
- Visa Inc. posted card-spending growth that was more robust than Wall Street expected as consumer demand for travel and dining out remained strong last quarter.
- AT&T Inc. reported profit and free cash flow that topped analysts’ estimates, offering a brighter picture as the phone giant faces a challenging restructuring effort, a heavy debt load and the potentially high costs of cleaning lead out of its old copper phone network.
Key events this week:
- China industrial profits, Thursday
- ECB rate decision, Thursday
- US GDP, durable goods orders, initial jobless claims, wholesale inventories, Thursday
- Japan Tokyo CPI, Friday
- BOJ rate decision, Friday
- Eurozone economic confidence, consumer confidence, Friday
- US consumer income, employment cost index, University of Michigan consumer sentiment, Friday
Some of the main moves in markets:
Stocks
- The S&P 500 fell 0.3% as of 11:08 a.m. New York time
- The Nasdaq 100 fell 0.9%
- The Dow Jones Industrial Average was little changed
- The Stoxx Europe 600 fell 0.7%
- The MSCI World index fell 0.2%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro was little changed at $1.1063
- The British pound rose 0.1% to $1.2918
- The Japanese yen rose 0.3% to 140.47 per dollar
Cryptocurrencies
- Bitcoin rose 0.2% to $29,279.01
- Ether fell 0.2% to $1,859.19
Bonds
- The yield on 10-year Treasuries was little changed at 3.88%
- Germany’s 10-year yield advanced six basis points to 2.49%
- Britain’s 10-year yield advanced two basis points to 4.29%
Commodities
- West Texas Intermediate crude fell 0.2% to $79.49 a barrel
- Gold futures rose 0.3% to $2,009.20 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Brett Miller, Tassia Sipahutar and Sujata Rao.
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