Bim
U.S. stocks on Wednesday were on track to end in the red, led lower by megacap technology companies. Hawkish rhetoric from a host of Federal Reserve speakers dampened the enthusiasm from the previous session sparked by central bank chief Jerome Powell’s comments.
Into the final hour of trading, the tech-heavy Nasdaq Composite (COMP.IND) was down 1.83% to 11,892.33 points, weighed down by a fall in shares of Alphabet (GOOG) (GOOGL) amidst the unveiling of several AI-focused updates at an event.
The benchmark S&P 500 (SP500) slipped 1.25% to 4,112.05 points, while the blue-chip Dow (DJI) declined 0.75% to 33,901.16 points.
All 11 S&P sectors were trading in the red. Heavyweight sector Communication Services slipped nearly 4% and led the losers.
Treasury yields were slightly lower. The 10-year Treasury yield (US10Y) was down 2 basis points at 3.65%, while the 2-year yield (US2Y) was down 2 basis points at 4.45%.
Powell on Tuesday at an event in Washington, D.C. emphasized that the Fed would be looking very closely at economic data between now and the March monetary policy committee meeting to decide on rate hikes going forward. The Fed chair also refrained from being too hawkish on the topic of last Friday’s explosive jobs report, but cautioned that the data showed the central bank still had a lot of work to do.
Yesterday, Fed chief Jerome Powell “reiterated a commitment to a weaker labor market, but did not appear to explain how higher unemployment might impact profit-led inflation,” UBS’ Paul Donovan said. “There is a mechanism (via weaker demand, squeezing margins), but it is not the only option. The remarks seem to suggest an unwillingness to break from rigid simplistic interpretations of the economy.”
On Wednesday, the most recent lineup of Fed speakers reiterated the idea that rate hikes would continue to be needed to quash inflation and a tight labor market.
New York Fed President John Williams at a summit said that it was still “very reasonable” for the central bank to hike rates to 5%-5.25%, in-line with policymakers’ December 2022 projections.
Fed Governor Lisa Cook at an event said that more rate hikes were needed to curb inflation. She added that tightening policy in smaller steps was the right way to go forward.
Meanwhile, Atlanta Fed President Raphael Bostic spoke in the morning. Later, Minneapolis Fed President Neel Kashkari at an event said that the Fed needs to push its benchmark rate higher to bring down inflation. Finally, Governor Christopher Waller rounded out the day’s speakers by warning that more tightening was needed as inflation remained too high.
On Wednesday’s economic calendar, December wholesale inventories rose 0.1%, which was in line with economists’ expectations.
“President Biden delivered his State of the Union address last night, in which he promised that the US would not hit the debt ceiling and default on its debts,” Deutsche Bank’s Jim Reid said. “As expected President Biden called for increased taxes on stock buybacks as well as billionaires, while also touting efforts to near-shore American manufacturing that is aligned to critical supply chains.”
“Last night cemented the likelihood that the longer run concern of fiscal imbalances won’t be handled until after the next presidential election without providing any clarity on the short-term debt limit assignment,” 22V Research’s Kim Wallace said on the State of the Union address.
“All in, our sense of macroeconomic risks important to investors didn’t change yesterday. We mentioned more than a few times since last fall that the Fed would drive investors’ perceptions of 1H23 DC policy risk, while focus would turn to fiscal policy in the second half. Powell’s first point at lunch yesterday was the only nugget he offered markets to digest. Whether one accepts his meager offering or not, the Fed isn’t changing course until goods disinflation also hits services, especially housing,” Wallace added.
In earnings related news, Lumen Technologies (LUMN) slumped and was the top percentage loser on the S&P 500 (SP500), after a disappointing earnings report and guidance. Conversely, Fortinet (FTNT) was the top S&P gainer as analysts cheered its results.
Among other active stocks, shares of Manchester United jumped on reports that a Qatari investment group will bid for the club within days.
