Wall St Slips as Investors Assess Cbank Comments
Wall Street’s main indexes slipped on Wednesday as investors parsed earnings reports and comments from Federal Reserve officials for clues on how long the U.S. central bank will keep interest rates high and eventually start cutting it.
Treasury yields have retreated sharply from their highs amid expectations that the Fed has reached the end of its rate-hike campaign, helping the S&P 500 and the Nasdaq notch their longest streak of gains in two years on Tuesday.
Markets are now pricing in rate cuts as soon as in May, according to the CME Group’s FedWatch tool, with odds of a cut of at least 25 basis points having risen to nearly 49%, compared with about 41% a week earlier.
Still, cautious comments from several central bank officials over the past few days have kept investors on edge, with Fed Governor Michelle Bowman flagging the possibility of further rate hikes given the strength of the U.S. economy.
Meanwhile, Fed Chair Jerome Powell did not comment on monetary policy in opening remarks to the U.S central bank statistics conference. Powell is scheduled to speak at another conference on Thursday.
While investors have priced in an end to the Fed’s interest rate hiking cycle, concerns that the central bank will keep rates at their current level for longer have gripped markets following hawkish comments from some Fed officials.
Federal Reserve Bank of Minneapolis President Neel Kashkari doused hopes of early rate cuts, saying the central bank may have to do more to bring inflation back down to its 2% target.
Chicago Fed chief Austan Goolsbee acknowledged the downward trend in inflation but maintained price pressures are not yet over.
Megacap growth names such as Microsoft, Apple and Amazon.com rose between 1.1% and 2.2%, helping the tech-heavy Nasdaq outperform peers.
“Originally, higher rates placed concern on the multiples of these stocks (but) it’s shifting now to the idea that they may be a defensive place to be in this market. They have fairly bulletproof balance sheets,” said Rick Meckler, partner at Cherry Lane Investments, in New Vernon, New Jersey.
“It’s hard to see the Fed moving to actual rate cuts in the first half of next year,” said Liz Ann Sonders, chief investment strategist at Charles Schwab.
“Inflation is not at the Fed’s target (and) the labor market, although weaker in October, has not deteriorated significantly. The economy still seems to have some traction.”
The benchmark U.S. 10-year Treasury yield slipped to 4.5295%, coming further off the 5% level breached in October. The U.S. Treasury is set to auction $40 billion of 10-year notes later on Wednesday.
On the earnings front, Warner Bros Discovery slumped 15.7% after the company said Hollywood strikes and a weak advertising market could hurt next year’s earnings. The dour outlook also dragged shares of Paramount Global down 6.7%.
Five of the 11 major S&P 500 sectors rose, with real estate and information technology leading gains.
While some analysts are cautiously optimistic about the prospects of a rally, others have highlighted recessionary concerns and tepid earnings forecasts keeping sentiment subdued.
At 11:27 a.m. ET, the Dow Jones Industrial Average was down 29.57 points, or 0.09%, at 34,123.03, the S&P 500 was down 2.93 points, or 0.07%, at 4,375.45, and the Nasdaq Composite was down 20.44 points, or 0.15%, at 13,619.42.
Among other movers, Take-Two Interactive Software rose 6.7% after the company said it would release a trailer early next month for the latest installment in its best-selling “Grand Theft Auto” videogame franchise.
Electric vehicle maker Lucid Group fell 7.9% after trimming its production forecast.
Declining issues outnumbered advancers for a 1.36-to-1 ratio on the NYSE and for a 1.77-to-1 ratio on the Nasdaq.
The S&P index recorded 15 new 52-week highs and five new lows, while the Nasdaq recorded 36 new highs and 118 new lows.