U.S. stocks traded lower Wednesday morning, as investors digested hawkish comments from Federal Reserve officials and monitored the ongoing war in Ukraine with President Joe Biden set to arrive in Europe to discuss the crisis with allies.
How are stock-index futures trading?
- The Dow Jones Industrial Averages DJIA, -0.75% fell 0.8% to 34,540
- The S&P 500 SPX, -0.38% dropped 0.5% to 4,488
- The Nasdaq Composite COMP, -0.03% declined 0.4% to 14,058
On Tuesday, the Dow climbed 254.47 points, or 0.7%, to close at 34,807.46, the S&P 500 rose 1.1% to finish at 4,511.61, and the Nasdaq Composite advanced 2% to end at 14,108.82.
What’s driving the market?
A largely positive week for U.S. stocks thus far, showed signs of stalling on Wednesday, as oil prices pushed higher while new home sales dipped in February, along with fresh comments from Fed officials during the session.
U.S. CL00 and Brent crude BRN00 rose almost 5% each to $114.51 and $121.22 a barrel, respectively.
The rise in oil prices are likely to be “at least partially responsible for yesterday’s strength [of U.S. stocks] and today’s weakness,” said Randy Frederick, Managing Director of Trading and Derivatives at Schwab Center for Financial Research.
“Crude oil and the SPX have a rather visible inverse correlation year-to-date,” Frederick said.
Cleveland Fed President Loretta Mester said Wednesday that the central bank will need to do ‘some’ 50 basis point rate hikes this year and markets can handle rate hike and start of balance sheet reduction at same time.
Mester and San Francisco Fed President Mary Daly backed up hawkish remarks at the start of the week from Fed Chairman Jerome Powell, who said the central bank could boost interest rates by more than a quarter percentage point if needed to rein in inflation. Daly will be speaking on the economy at 11:45 a.m. Eastern.
U.S. new-home sales fell 2% to an annual rate of 772,000 in February, Census Bureau said Wednesday. Economists polled by MarketWatch expected new-home sales in February to drop to an annual rate of 805,000.
The yield on the 10-year Treasury note TMUBMUSD10Y, 2.366% was slightly lower after hitting the highest levels since mid-2019. U.S. stocks have shrugged off the fresh spike in yields seen over the past two weeks, “suggesting that the Fed is still badly behind the curve if its intention is a significant tightening of financial conditions,” said the Saxo Bank strategy team in a note to clients.
“Some even suggest that the Fed’s rate hikes are unlikely to work very quickly on the economy as consumers have exited the pandemic with strong balance sheets and supply-side disruptions have little to do with the policy rate in any case,” said the analysts. So the Fed could be targeting a “negative wealth effect” bringing down demand and thereby prices for assets from housing to equities.
While the Fed may find it faster to do that with quantitative tightening, the central bank and the market may be “locked into a dangerous battle, with the Fed prepared to continue turning the screws until something ‘breaks,’” said the analysts.
Investors were also watching the four week war in Ukraine where Russia is increasingly bogged down in a costly and uncertain military campaign, with untold numbers of dead, encircled by western sanctions that are biting hard on its economy and currency.
President Biden is headed to Europe for four days to attend meetings of NATO, the G7 and the EU in Brussels and Warsaw this week and strategize on how to keep Russia’s Ukraine invasion from spiraling into an even larger crisis. He’s also expected to announce more sanctions to punish Russia, and ways to continue pressuring China from coming to that country’s aid.
“Supply chains from Asia to EU may come under further pressure as automakers and tech giants look to avoid rail routes through Russia and shift to sea routes, causing further congestion. Rising Covid cases in China and continued mass testing is also threatening shipping delays,” said the Saxo team.
Which companies are in focus?
- GameStop GME, +12.07%’s chairman Ryan Cohan has bought 100,000 more shares in the meme stock, pushing his holding up to 11.9%, according to a regulatory filing late Tuesday. The company’s shares jumped 30.7%.
- Medical marijuana company Cresco Labs CRLBF, -5.97% reached an agreement on Wednesday to acquire Columbia Care CCHWF, +0.32%, a fellow Canadian cannabis company, for $2 billion. The companies said the deal will create the largest U.S. multi-state operator in the U.S based on pro-forma revenue.
- Moderna MRNA, -1.62%’s COVID-19 vaccine works for kids under 6 years old, the company said Wednesday. The company will seek an emergency use authorization from regulators in the U.S., Europe and elsewhere for the vaccine in babies, toddlers and preschoolers, it said. Moderna’s shares dropped 3.8%.
How did other assets fare?
- The ICE U.S. Dollar Index DXY, +0.21%, a measure of the currency against a basket of six major rivals, rose 0.3%.
- In oil futures, West Texas Intermediate crude for April delivery CL.1, +2.92% rose 2.7% to $114.73 a barrel. Gold futures GC00, +0.53% also traded higher, with gold for April delivery GCJ22, +0.53% rising 0.6% $1,933.30 an ounce.
- Bitcoin BTCUSD, -0.26% declined 1.2% to trade at $42,325.
- In European equities, the Stoxx Europe 600 SXXP, -0.95% is down 0.9% while London’s FTSE 100 UKX, -0.19% declined 0.1%.
- In Asia, the Shanghai Composite SHCOMP, +0.34% closed 0.3% higher, the Hang Seng Index HSI, +1.21% jumped 1.3% in Hong Kong and Japan’s Nikkei 225 NIK, +3.00% gained 3%.
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