Wall Street stocks mostly rose on Wednesday in the wait to find out whether the Federal Reserve will hold interest rates steady as expected at the wrap-up of its meeting later.
In midday trading, the Dow Jones Industrial Average (^DJI) was up 0.6%, while the S&P 500 (^GSPC) gained about 0.3%, after the benchmarks closed lower on Tuesday. The tech-heavy Nasdaq Composite (^IXIC) was slightly below the flatline, after tech stocks lost ground in the previous session as Instacart’s IPO rally lost some momentum.
Traders overwhelmingly believe the Fed won’t hike rates, pricing in a 99% chance of a pause in its tightening campaign, according to the CME FedWatch Tool. The focus is instead on what happens in the future: whether it will return to raising borrowing costs this year, and when a rate cut could be in the cards.
Read more: What a Fed rate-hike pause would mean for bank accounts, CDs, loans, and credit cards
Given that, the focus will be on what the central bank’s “dot plot” signals about the future path of rates, and what hints can be gleaned from Fed Chair Jerome Powell’s comments.
The recent soaring rally in oil prices, seen by some as a risk to the Fed’s efforts to cool inflation, pulled back somewhat on Wednesday as investors weighed how its policy decision might affect economic growth and fuel demand. Brent crude (BZ=F) and WTI crude (CL=F) futures were down about 0.7%, but analysts are still concerned prices might be headed above $100.
In another sign of a reviving US IPO market, Klaviyo (KVYO) is set to make its debut on Wednesday, on the heels of debuts by Arm (ARM) and Instacart (CART). The marketing automation company has priced its offering above range at $30 a share, for a valuation of $9.2 billion.
Elsewhere, an unexpected slowdown in UK inflation boosted the odds that the Bank of England will pause increasing interest rates after making one last hike on Thursday. The British pound dropped after the August inflation report.
Stocks mixed ahead of Fed meeting
The tech-heavy Nasdaq slipped into the red in afternoon trading as investors awaited a highly anticipated policy decision and press conference from Federal Reserve Chair Jerome Powell.
The Dow Jones Industrial Average (^DJI) rose nearly 0.6% while the S&P 500 (^GSPC) popped about 0.2%. Meanwhile the Nasdaq (^IXIC) slumped about 0.1%.
Bank of America boosts S&P 500 year-end target
With fears of another Fed rate interest hike and a consumer slowdown looming, there’s plenty for stock market bears to point too when making the case for stocks to decline as 2023 comes to a close.
But Bank of America’s head of US equity & quantitative strategy Savita Subramanian has a simple message for investors courtesy of a reggae music legend: “Don’t worry, be happy,” Subramanian wrote in a new note to clients on Wednesday.
Bank of America boosted its year-end target for the S&P 500 to 4,600 from 4,300 in the note. That would reflect about 3% upside from the S&P 500’s current levels.
‘“Recession averted” says the consensus economist, but a fresh wave of bear narratives around equities have emerged,” Subramanian wrote. “The net message of our five target indicators is bullish, yielding a new 2023 year-end target of 4600, up from 4300.”
Bank of America’s year-end 4600 call for the S&P 500 is one of the highest among Wall Street strategists tracked by Yahoo Finance. That’s a good sign, according to BofA’s research.
“Stocks discount expected growth but react to surprises,” Subramanian.
Based on data since 1999, BofA found the average S&P 500 year-end target at the end of August typically projects 5% gains through the end of the year. In the rare years when strategists see the benchmark index declining from it’s August close, the S&P 500 has risen every time and boasts better average returns than when strategists had predicted gains for the S&P 500.
At the end of August this year, strategists S&P 500 targets suggested 2% downside. So even as the macro headwinds mount, maybe there still could be room for another surprise to the upside.
Fed expected to hold rates steady
The Federal Reserve isn’t expected to hike interest rates when it announces its latest policy decision later this afternoon. But that doesn’t mean the central bank is done hiking interest rates.
Yahoo Finance’s Jennifer Schonberger reports:
The Federal Reserve is widely expected to hold interest rates steady Wednesday afternoon while also leaving the door open on future actions to bring down inflation.
Many economists and Fed watchers expect officials to pencil in one more rate hike before moving into an extended pause.
“I think the market is correct in expecting the Fed to skip this meeting” and “maintain its vigilance,” Marvin Loh, State Street senior global macro strategist, told Yahoo Finance Tuesday. The Fed, he added, will keep “optionality for another hike before they are done with the tightening process.”
Rates now stand in the range of 5.25%-5.5%, following 11 rate hikes since March 2022, the most aggressive action from the central bank to tackle inflation since the 1980s.
But while many expect just one more rate hike, the bigger question may be how long will the Fed stay on hold at elevated levels. Will officials still see 100 basis points of rate cuts next year or will there be fewer rate cuts projected, implying rates will remain higher for longer?
“They might signal they are not going to cut as aggressively going into next year,” Loh added. “So this higher-for-longer message is probably where we are starting to see concerns around interest rates being …higher over the last couple of days and a little bit of volatility within the equity markets as of late.”
Fed Chair Jerome Powell is likely to note up front that the job is not done on inflation and the Fed will stay the course in order to get inflation back to 2%.
Powell is also likely to reiterate his message from Jackson Hole that the Fed is “in a position to proceed carefully” as it mulls future actions, while also leaving rate hikes squarely on the table.
“One thing I will give Powell and company credit for is they have guided the markets pretty well up to now,” Kevin Flanagan, WisdomTree’s head of fixed Income strategy, told Yahoo Finance.
Stocks open higher ahead of Fed meeting
Stocks were in the green Wednesday morning as investors awaited the latest policy decision from the Federal Reserve set for 2 p.m. ET. While the central bank is widely expected to hold interest rates steady investors’ focus will be on what the Fed projects for future rate hikes.
The Dow Jones Industrial Average (^DJI) and the S&P 500 (^GSPC) popped about 0.2%. Meanwhile the tech-heavy Nasdaq (^IXIC) rose just above the flat line.
Instacart, Pinterest, and General Mills: Stocks trending in premarket trading
Here are some of the stocks leading Yahoo Finance’s trending tickers page in premarket trading on Wednesday:
Instacart (Maplebear Inc.) (CART): Shares for the grocery delivery business were down by 4%. On Tuesday, Instacart went public on the Nasdaq. Its stock opened around $42 a share, some 40% higher than the anticipated $30, but pared gains before ending up about 12%.
Pinterest (PINS): The image-sharing and social media service saw its share price rise by 4%. On Tuesday, it announced the appointment of Scott Schenkel, former chief financial officer and interim CEO of eBay, to its board.
General Mills (GIS): Shares in Cheerios maker General Mills rose by 1% after it topped quarterly sales as price hikes on its products helped cushion a slowdown in demand.
Dollar General (DG): Shares fell by 1%. A report from Bloomberg on Wednesday documented poor working conditions at the retailer’s stores.
Stock futures rise with Fed in focus
Stocks on Wall Street pointed to a higher open ahead of the Federal Reserve policy decision later Wednesday, with traders convinced policymakers will hold interest rates steady.
Futures tied to the Dow Jones Industrial Average (^DJI) were up 0.20%, or 68 points, while S&P 500 (^GSPC) futures advanced 0.17%. Nasdaq 100 futures moved up 0.13%
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