All eyes are on the Federal Reserve and Jerome Powell, the chair of the central bank.
Tom Williams/Getty Images
The stock market was rising Wednesday ahead of the Federal Reserve’s interest-rate decision. Bond yields weren’t moving much—for the moment.
In midday trading, the Dow Jones Industrial Average has risen 153 points, or 0.5, while the S&P 500 has gained 0.9% and the Nasdaq Composite has jumped 1.6%.
“We’re seeing a modest recovery in equity markets ahead of some key central bank meetings but investors remain wary of what’s to come,” wrote Edward Moya, senior market analyst at Oanda.
The Fed is expected to lift the benchmark lending rate by at least a half a percentage point when it makes its announcement at 2 p.m. Eastern time. But markets are now pricing in the near certainty that the Fed lifts the rate by three-quarters of a point—the fed-funds futures market pricing in a 99% chance that the Fed goes that far today—as the central bank tries to tackle inflation that has recently soared to new heights.
Much of that outcome, though, is already reflected in the stock and bond markets. The S&P 500 fell almost 11% from June 2, the peak of a short rally, through Tuesday’s close. The 2-year Treasury yield, which attempts to forecast the level of the benchmark lending rate a couple of years into the future, rose to a multiyear high of 3.435% Tuesday, though it has slipped to 3.34% Wednesday. The 10-year yield rose to a multiyear high of 3.435% by Tuesday, but it’s now down to 3.41%.
“It’s gotten to the point that some investors we’ve spoken with are almost begging for the Fed to raise rates by 75 basis points so as to confirm the Fed’s panic at the inflationary maelstrom,” wrote John Roque, head of technical strategy at 22V Research.
Now, market participants see a fairly decent chance of a big stock market rally after the Fed speaks. It’s possible that the extent of the Fed’s hawkishness—its willingness to rapidly raise rates—is fully reflected for the moment in the ailing stock market. That means, if the central bank delivers news that isn’t worse than expected, stocks could enjoy a relief rally.
“With stocks, I would not be surprised if we had one of those rip your face off bear market rallies after 2 p.m.,” wrote Peter Boockvar, chief investment officer of Bleakley Advisory Group.
That’s the hope for traders, but more selling could kick in if the Fed lifts the rate by three quarters of a point—and then implies that it will continue to hike rates at that pace going forward.
In fact, “those worried about rates upside will pay close attention to how Powell deals with questions on the possibility of 100 basis point [a full percentage point] hikes down the road,” wrote Steve Englander, an analyst at Standard Chartered Bank.
The early rise in stocks Wednesday, though, didn’t do much for cryptocurrencies. Bitcoin was down 3.4% to just over $21,300. Ether was down 7.6% to just over $1,100.
Here are five stocks on the move Wednesday:
Companies involved in the crypto space or with exposure to digital assets began to recover on Wednesday. Exchange Coinbase Global (ticker: COIN) has risen 6.1%, after having lost 25% of its value in the last five days. Software group MicroStrategy (MSTR), which has significant holdings of Bitcoin on its balance sheet, has added 9% after a 33% slide since late last week.
Zendesk
(ZEN) has risen 2.9% following a report from The Wall Street Journal that the provider of cloud-based customer-service software was in settlement talks with activist investor Jana Partners that could include the departure of the company’s chief executive.
Penske Automotive Group (PAG) stock has gained 1.8% after the company lifted its quarterly dividend to 47 cents a share from 46 cents.
Spotify Technology (SPOT) stock has gained 6.4% after getting upgraded to Equal Weight from Underweight at Wells Fargo.
Write to Jacob Sonenshine at jacob.sonenshine@barrons.com and Jack Denton at jack.denton@dowjones.com
