Win McNamee
US stocks headed for an uncertain end on Wednesday after economic data continued to show a resilient job market and Federal Reserve chief Jerome Powell stressed that no decision had been made on rate pacing. walks
In the last hour of the trading session, the high-tech Nasdaq Composite (COMP.IND) was down 0.09% to 11,519.76 points. The benchmark S&P 500 (SP500) index was lower by 0.29% to 3,974.64 points, while the blue-chip Dow (DJI) was down 0.55% to 32,676.05 points.
Of the S&P’s 11 sectors, seven were now trading in the red, led by Energy and Finance. Real Estate and Public Services led the winners.
Wall Street’s major indexes tumbled in the previous session after Fed Chairman Powell indicated in his prepared remarks to the Senate that the central bank would continue to monitor incoming data and was open to further rate hikes to combat inflation.
On Wednesday, the central bank chief appeared before the House Financial Services Committee as part of his two-day testimony on the semiannual monetary policy report. His prepared comments from him were the same as Tuesday’s. In the question and answer session, he stressed that the central bank had yet to make a decision on the pace of rate hikes at the March meeting, as it awaited key data in the form of upcoming jobs and CPI reports.
Powell’s testimony on Tuesday had a significant impact on Treasury yields. On Wednesday, the more rate-sensitive 2-year Treasury yield (US2Y) had reached levels not seen since 2007. It rose 5 basis points to 5.06%, while the 10-year Treasury yield (US10Y) fell 1 basic point. at 3.97%. In addition, the 2s10s curve inverted over 100 basis points, hitting a multi-decade high.
“[Yesterday] it was another historic day in the markets” and “the US terminal has beaten our forecast of a leading 5.6% on the street and closed at 5.624% last night,” said Jim Reid of Deutsche Bank.
“Note that on all previous occasions that the 2s10 have inverted more than -100 bp since data became available for the early 1940s (1969, 1979, 1980, and 1981) there has been a recession or there has been a occurred within an 8-month high. To highlight the rarity of such an occurrence, there have only been 7-month-end closes below -100bp in 80 years of available data. So we are in thin air,” Reid added.
According to the CME FedWatch tool, markets are now pricing in a 72% probability of a 50 basis point rate hike at the monetary policy committee meeting later this month, almost a reversal from the start of the week when the probability of a 25 basis point increase was almost 75%.
Wednesday’s economic calendar saw the release of ADP Private Payrolls data for February, which beat economists’ expectations with a reading of 242K compared to the consensus forecast figure of 200K. Also, the JOLTS figures for January fell less than expected. Job openings for January came in at 10.824 million versus the anticipated consensus figure of 10.6 million. Both sets of numbers continued to point to an active job market.
The beige book of economic activity from the Fed will arrive this afternoon.
Among active stocks, brewing giant Molson Coors (TAP) was the top percentage gainer in the S&P 500 (SP500) amid takeover speculation.
By contrast, Tesla (TSLA) was among S&P’s top percentage losers after a stock downgrade and a regulatory investigation into steering wheel problems.