U.S. stock indexes edged up in choppy trading on Wednesday, even though hotter-than-expected inflation data deepened concerns that the Federal Reserve may continue its aggressive interest rate hikes.
How are stock-index futures trading
The Dow Jones Industrial Average
went up 61 points, or 0.2% to around 29,293
The S&P 500
added 8 points, or 0.2% to about 3,596
The Nasdaq Composite
traded 27 points, or 0.3% higher to 10,453
On Tuesday, the Dow Jones Industrial Average rose 36 points, or 0.12%, to 29239, the S&P 500 declined 24 points, or 0.65%, to 3589, and the Nasdaq Composite dropped 116 points, or 1.1%, to 10426. The S&P 500 closed down 1,177 points, or 24.7% for the year to date.
What’s driving markets
The 12-month rate of producer price inflation slowed to to 8.5% from 8.7% while the annual core rate, excluding food and energy, was unchanged at 5.6%, but the monthly rate rose 0.4% in September, above forecast, and the monthly core PPI was also up 0.4% in September.
Traders are also awaiting U.S. September consumer prices data on Thursday due at 8:30 am Eastern Time.
Buyers returned tentatively to U.S. equity index futures overnight after chronic concerns about the Federal Reserve continuing to hike interest rates, as it battles to crush inflation, had pushed stock benchmarks to fresh lows.
But the tech-heavy Nasdaq Composite has been particularly badly hit in the latest selloff, down 34% from its record high and falling to its lowest level since July 2020, with traders balking at often rich valuations amid a period of higher borrowing costs.
The 10-year Treasury yield
which started the year around 1.65% was trading at 3.958%, up 1.1 basis points, on Wednesday after the producer price inflation data.
“Equities have become incredibly fragile, as knock-on effects from central bank tightening further pressure equity risk premia higher (lower multiples). And investors generally fear that inflation is not falling at a pace fast enough to prevent more aggressive measures by the Fed,” said Tom Lee, head of research at Fundstrat.
“The most important economic report this week is the September CPI report. Inflation has proven to be difficult to forecast and given the negative ‘shock’ from the August CPI, it would be difficult for any investor to have conviction going into this report,” Lee added.
Adding to the market anxiety, and keeping any Wednesday rally in check, is the continuing volatility in U.K. government bonds after the Bank of England reiterated it would stop supporting the market after Friday.
Investors have become increasingly concerned of late that severe stresses in the financial system may emerge as central banks switch from the era of zero or negative interest rates to sharply higher borrowing costs as they try to tackle inflation at multi-decade highs.
“[G]lobal financial conditions have tightened as central banks continue to raise interest rates. Our latest Global Financial Stability Report shows that financial stability risks have increased since our last report, with the balance of risks tilted to the downside,” said the International Monetary Fund in a report released on Tuesday.
“The mood of global investors was gloomy enough and hardly needed yesterday’s reminder from the IMF that the risks to financial stability have increased,” Ian Williams, strategist at Peel Hunt, noted. “Its report highlighted specifically (if obviously) the threats from persistent inflation, China’s slowdown and the war in Ukraine. The highlighted ‘disorderly repricing of risk’ is arguably already underway.”
The Fed may offer its view on the topic as a number of officials are due to give comments on Wednesday. Minneapolis Fed President Neel Kashkari is due to speak at 12 noon ET, while Fed vice chair Michael Barr will speak at 1:45 p.m. The minutes of the Fed’s previous monetary policy setting meeting will be released at 2 p.m. ET and Fed governor Michelle Bowman will deliver comments at 6.30 pm.
Companies in focus
Shares of Philips
dropped 8% to their lowest level since 2012 after the Dutch tech company issued its second profit warning this year, forewarning that supply chain problems will impact sales and third-quarter profits.
may fire thousands of workers by the end of the month, around the same time the chip manufacturer reports quarterly results amid a tough year for semiconductor makers, Bloomberg reported late Tuesday. The company’s shares went up 0.8% in premarket trading Wednesday.
Shares of PepsiCo Inc. climbed 2.8% in premarket trading Wednesday, after the beverage and snack giant reported third-quarter profit and revenue that rose above expectations and raised its full-year outlook, as higher prices helped offset some volume weakness.