U.S. stock indexes traded lower on Wednesday, after ADP posted stronger-than-expected job growth in the private sector, while traders await the Federal Reserve’s monetary policy decision later in the session.
How are stock indexes trading
- The Dow Jones Industrial Average DJIA, -0.17% went down 95 points, or 0.3%, to around 32,557.
- The S&P 500 SPX, -0.54% dipped 17 points, or 0.5% to 3,838.
- The Nasdaq Composite dropped 58 points, or 0.5% to 10,831.
On Tuesday, the Dow Jones Industrial Average fell 80 points, or 0.24%, to 32653, the S&P 500 declined 16 points, or 0.41%, to 3856, and the Nasdaq Composite dropped 97 points, or 0.89%, to 10891. The Nasdaq Composite is up 5.5% from its 2022 closing low, but remains down 30.4% for the year to date.
What’s driving markets
Movement in the expected trajectory of borrowing costs have been a major driver of stocks in 2022. In its battle to combat inflation running at 40-year highs, the Fed has raised interest rates from zero in February to a range of 3% to 3.25%, a tightening of liquidity that dragged the S&P 500 index down 19.1% for the year to date.
Investors have priced in another 75 basis point benchmark interest rate hike by the Fed on Wednesday, the fourth such large rise in a row. However, stocks have rallied off recent lows on hopes Chairman Jerome Powell may signal the pace of rate rises may slow from hereon.
“Investors are waiting for clues from the Federal Reserve about the path of rate rises, and in the meantime a slightly more wary mood has settled on the markets,” said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.
“The Fed is expected to bring in another super-size rate hike of 0.75%, but that has been priced in. Instead it is the words that Powell chooses to use, about the economic outlook and what the future may hold, which are set to be market movers,” said Streeter in a morning note.
Many analysts are warning that equity bulls may have become over optimistic that Powell is about to signal a less hawkish stance, particularly given how sticky inflation remains and how relatively robust the U.S jobs market is.
“Markets have been reacting to dovish expectations for Wednesday’s FOMC, which I have argued are wrong. Based on U.S. economic data out Tuesday (JOLTS, manufacturing PMI), there is no way for the Federal Reserve to turn dovish. The labor market is still strong, and manufacturing is still (slightly) expanding,” said Stephen Innes, managing partner at SPI Asset Management.
“Even if we see the Fed slow the pace of hikes, they are still hiking, the policy is still highly restrictive, front-end rates will still get worse before they get better, and risks of higher terminal rates are still very acute. Sure we could see a knee jerk higher on stocks via a lower Fed glide path, but will it be sustainable?” he added.
U.S. equity indexes turned lower Wednesday after payroll services firm ADP said the private sector added 239,000 jobs in October. Economists polled by the Wall Street Journal earlier forecasted an increase of 195,000 jobs.
“I think the ADP data was a bit more robust than folks thought,” said Timothy Holland, chief investment officer at Orion Advisor Solutions. “The market is really hoping that the Fed can credibly pivot to just a 50 basis point rate hike in December and then maybe even downshift from there in 2023,” according to Holland.
“You’ve seen some softness [in the economy], but you’re not really seeing it in the labor market necessarily. And can the Fed credibly downshift if you’re not getting softness on the jobs front? And that’s the big question,” Holland said.
Helping support stocks was a well-received earnings report from chipmaker AMD AMD, +2.19%, delivered after Tuesday’s closing bell. Companies reporting on Wednesday include Paramount Global PARAA, -10.92%, Zillow Z, -1.45% and eBay EBAY, -1.39%.
Meanwhile, in China, investors continued to bet on rumors that Beijing was considering relaxing its COVID-19 lockdown policy. The Hang Seng China Enterprises index 160462, +2.79%, which closed on Monday at a 17-year low having fallen about 40% so far in 2022, took its two-day rebound to 8.2%.
See also: Live Markets Coverage
Companies in focus
- Shares of Match Group Inc. MTCH, +4.97% rose 4.7% Wednesday after the online-dating company exceeded revenue expectations for its latest quarter and said that it would “accelerate” cost-control efforts.
- Caesars Entertainment Inc. CZR, +4.71% shares went up 6.3% Wednesday after management on Tuesday revealed a measure of profit in its digital betting business turned positive last month, giving the business a chance to contribute to profit in the months ahead.
- CVS Health Corp. CVS, +4.52% stock gained 4.7% Wednesday, after the company announced a $5 billion settlement of opioid claims and third-quarter earnings blew past estimates.