U.S. equities faltered as investors awaited the Federal Reserve’s latest economic outlook and any signals on interest rates and bond purchases for the next few years.
The futures contract linked to the broad S&P 500 index and the Dow Jones industrial average were relatively low, suggesting that the benchmarks may be awkward after the market opens. Both meters showed a lower decline on Tuesday, a day after closing on records. Contracts linked to the technology-heavy Nasdaq-100 rose 0.3% lower on Wednesday.
Federal Reserve officials, who are expected to announce their latest economic forecasts at 2 p.m. ET, are likely to say they expect the labor market and inflation to recover faster than they expected in December. The central bank is generally expected to reaffirm its commitment to ultra-low interest rates and bond purchases.
Money managers have already started praising a rise in inflation, which has led to a sell-off in government bonds, and bet that interest rates will start to rise by the end of next year. They have also started to leave stocks that appear to be overvalued after last year’s rally.
“Markets in general are expensive today, and they are fixed on central bank support,” said Hugh Gimber, a strategist at JP Morgan Asset Management. “This whole market is therefore very, very sensitive to changes in central banking policy.”
A spike in the forecasts of Fed policymakers may show that some officials expect a first rate hike in 2023, Mr. Gimber said. “But the key is communication: how will they balance this moderately brighter outlook while indicating that the Fed is still there to support markets?”
In bond markets, yields on the standard ten-year US Treasury note rose to 1,644%, from 1,622% on Tuesday. The yield increases as the price decreases. Yields have risen sharply from this year’s low of 0.915% on 4 January.
Indications and signals from Fed Chairman Jerome Powell during his press conference, which begins at 2:30 p.m., will be key for investors.
“It’s about fewer predictions, but still about communication, so Powell is really walking on a chord,” he said. Gimber said. “Powell will use his comments to prevent an overreaction in the bond market.”
Investors have been reforming their portfolios over the past few weeks as economic prospects are boosted by large sums of government stimulus spending and the implementation of the coronavirus vaccine. This has driven the bets on the struggling and economically sensitive sectors of the market, while weakening an increase in high aviation technology stocks.
Traders worked on the floor of the New York Stock Exchange on Tuesday.
Photo:
Colin Ziemer / Associated Press
‘Markets have basically gone as far as they can to expect the recovery of 2021. The market has mostly seen what it wants to see, ”said Tim Courtney, chief investment officer of Exencial Wealth Advisors. “It’s all currently based on interest rates: we’re starting an economic recovery and normalizing rates and rising higher and that will benefit the economically sensitive companies.”
Prior to the meeting, investors will also begin data on U.S. housing for clues about the strength of the economy. The figures are expected at 8:30 a.m. ET will show that new projects for residential buildings declined slightly in February from the previous month.
Brent crude, the international benchmark for oil, fell 0.8% to $ 67.87 a barrel.
In overseas markets, the Stoxx Europe 600 rose 0.4% lower.
In Asia, most indices changed little through the settlement. The Kospi index in South Korea fell 0.6%, while the index of the Shanghai Composition, Hang Seng and Nikkei 225 all ended largely flat that day.
Write to Will Horner by [email protected]
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