U.S. stock indexes fell on Wednesday ahead of the Federal Reserve’s decision on interest rates later in the day, while an upbeat outlook from Advanced Micro Devices lifted chipmakers.
The Fed is widely seen as raising its target interest rate by a quarter of a percentage point in its first policy meeting of the year, after rapid increases in 2022 to tame decades-high inflation.
Money markets are betting on one more 25 basis point (bps) hike in March, and a terminal rate of 4.9% in June.
“It’s really boiling down to a longer term outlook beyond this policy meeting and where this peak terminal rate with Fed funds is going to be,” Adam Turnquist, chief technical strategist at LPL Financial.
Recent readings have indicated that inflation is easing, with the Fed also looking at data that will determine the resilience of the labor market and the pace of wage growth.
Meanwhile, data showed U.S. job openings unexpectedly rose in December ahead of the Labor Department’s comprehensive report on nonfarm payrolls for January due on Friday.
Separately, data showed U.S. manufacturing contracted further in January as higher interest rates stifled demand for goods.
“It’s going to come down to the narrow line between avoiding a recession and entering a recession. That’s the Fed’s issue as they finish up their two-day policy meeting today,” Turnquist added.
All three indexes had a strong start to the year, with the S&P and the Dow witnessing their first gain for January since 2019 as investors returned to markets, which were bruised in the previous year by a hawkish Fed.
Advanced Micro Devices Inc added 8.0% as the semiconductor maker said it expects its business to improve in the second half of the year, propping the Philadelphia SE Semiconductor index, which climbed 1.8%.
All of the 11 major sectors on the S&P 500 were down, with technology shares falling the least.
Snap Inc tumbled 14.2% after the social media company said it expects current-quarter revenue to decline by as much as 10%.
Facebook parent Meta Platforms Inc dipped 0.1% ahead of reporting fourth-quarter results after the bell.
At 12:21 p.m. ET, the Dow Jones Industrial Average was down 381.36 points, or 1.12%, at 33,704.68, the S&P 500 was down 25.69 points, or 0.63%, at 4,050.91, and the Nasdaq Composite was down 51.42 points, or 0.44%, at 11,533.13.
Dow component Amgen Inc dropped 4.8% as the drugmaker said its fourth-quarter revenue fell slightly, while videogame publisher Electronic Arts Inc slumped 12.0% on lowering its annual bookings forecast.
Seventy percent of the 200 companies in the S&P 500 that have reported fourth-quarter earnings have topped Wall Street expectations. Analysts now see earnings of S&P 500 firms declining 2.4% for the quarter, per Refinitiv estimates.
“The market is saying we’re good with a pause, but I’m not sure the Fed is going do that. If the economic data continues to support downward, they may hold off on the third. I think they should absolutely do that, Conzo added.”
However, that dynamic may be petering out, said Aaron Dunn, co-head of the value equity team at Eaton Vance.
“People have come back to energy in a big way,” he said. “We had that tailwind the last couple of years, which was that everyone was under-invested in energy. I don’t think that’s the case anymore.”