U.S. stocks edge higher on eve of expected half-point Fed interest rate hike

US equities rose on Tuesday morning, gaining some traction on the eve of what is expected to be the tightening of the Federal Reserve’s most aggressive monetary policy in two decades.

What is happening
  • The Dow Jones Industrial Average DJIA,
    + 0.79%
    rose 151 points, or 0.5%, to 33,212.

  • The S&P 500 SPX,
    + 1.00%
    gained 32 points, or 0.8%, to 4,187.

  • The Nasdaq Composite COMP,
    + 0.50%
    advanced 32 points, or 0.3%, to 12,568.

On Monday, the Dow rose 84 points, or 0.3%, while the S&P 500 gained 0.6% and the Nasdaq Composite 1.6%.

What is driving the markets

The Federal Open Market Committee began a two-day meeting on Tuesday that is expected to end its first half-percentage-point interest rate hike since 2000, as well as a plan to reduce the size of the its balance.

“We expect Powell to keep the door open at an aggressive pace of gains for the rest of the year,” said Matthew Ryan, Ebury’s senior market analyst. “While Powell will not previously pledge to raise rates at specific meetings on Wednesday, he will almost certainly reiterate that rates could be increased at each meeting in 2022.”

Reads: Powered on the way to the biggest rate hike since 2000

Both stocks and bonds suffered a miserable April, with the S&P 500 falling nearly 9% and the JPMorgan US Aggregate Bond ETF JAGG,
+ 0.42%
down 4%.

“Perhaps one of the most interesting changes observed during the first four months of the year is the shift from a market backed by a‘ Fed put ’, where‘ buying down ’was an infallible strategy, to one that it was operating with a ‘call’ Fed, with the sale to the force that governs the site, “said Michael Brown, head of market intelligence at Caxton.

“This ‘Fed call’ comes as a result of political leaders actively wanting to see a tightening of financial conditions, as President Powell himself pointed out at the last press conference.”

The data, in turn, highlighted a tight labor market. Job vacancies in the United States rose to a record 11.5 million in March, while the number of people who resigned also reached an all-time high.

U.S. manufactured goods orders rose 2.2 percent stronger than expected in April, the Commerce Department reported.

Shares recovered from losses in Monday’s session after 10-year Treasury yield TMUBMUSD10Y,
touched 3% for the first time since December 2018, but failed to push above the threshold, leading some investors to argue that the liquidation of the Treasury could have followed its course at least in the short term. There was a pause in the relentless rise in yields which gave the stocks some room for a rebound.

10-year yields fell about 7 basis points to 2.923%.

Market bearers argued that any respite is likely to be short-lived, although conditions could pave the way for a volatile rebound in the short term.

“On the positive side, the market is currently so overwhelmed that any good news could lead to a vicious rebound in the bear market. We can’t rule out anything in the short term, but we want to make it clear that this bear market is far from complete. in our opinion, “Morgan Stanley-led analysts Mike Wilson wrote in a note.

They said the S&P 500 could fall to 3,460, the 200-week moving average, if earnings per share 12 months later begin to fall due to margin concerns and / or recession.

Also read: “You don’t want to have bonds and stocks” in this environment, says legendary investor who called the ’87 crash

A reminder that not only is the Fed hardening came from the Reserve Bank of Australia, which began its rate hike cycle with a 25 basis point increase. The Bank of England is meeting on Thursday and is also expected to raise interest rates.

Meanwhile, the U.S. corporate earnings reporting season continues with results from companies like Pfizer PFE,
+ 2.70%,
Biogen BIIB,
+ 1.43%,
and after shutdown, AMD Advanced Micro Devices,
+ 1.15%
and Starbucks SBUX,

Market participants may also be discussing the political and therefore economic consequences of the draft U.S. Supreme Court ruling that would overturn the historic Roe Vs. Wade legalizing abortion.

Which companies are focused on
  • Biogen Inc. he said on Tuesday that he is conducting a search to replace CEO Michel Vounatsos, who will remain in his role unless a successor is appointed. The announcement came in the company’s first-quarter earnings, which saw Biogen lose Wall Street expectations of earnings and revenue. Shares rose 1.5%.

  • Actions of Pfizer Inc. rose 2.4% after the drug maker posted better-than-expected first-quarter earnings on Tuesday, boosted by sales of its COVID-19 vaccine and Paxlovid antiviral.

  • Chegg Inc. Shares fell more than 30% after the online education company cut an annual forecast provided three months ago.

  • Clorox Co.
    + 4.55%
    it shifted toward a quarterly profit and recorded 2% stronger sales growth than expected in the March quarter, but reduced earnings projections for the year, citing commodity and retail costs. manufacturing and logistics. Shares rose 3.6%.

What other assets are doing
  • ICE US Dollar DXY Index
    a measure of the currency against a basket of six major rivals, fell 0.4%.

  • Oil futures fell, with US benchmark CL.1
    a 1.8% drop above $ 103 a barrel, while GC00 gold futures,
    + 0.65%
    rose 0.7% to trade above $ 1,875 an ounce.

  • Bitcoin BTCUSD,
    + 0.16%
    it fell 0.6% to below $ 38,300.

  • The Stoxx Europe 600 SXXP,
    + 0.42%
    increased by 0.3%, while the FTSE 100 UKX in London,
    + 0.10%
    it was down less than 0.1%.

  • The Hang Seng HSI Index,
    + 0.06%
    it rose less than 0.1% in Hong Kong, while many other Asian markets were closed for holidays.

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