U.S. stocks on Tuesday rose after volatile trading, as market participants parsed remarks made by Fed chair Jerome Powell and looked for clarity on the path of future rate hikes.
After trading mixed through most of the day, the three major indices pushed higher after mid-day, helped by gains in heavyweight communication services and consumer discretionary stocks.
By late afternoon, the tech-heavy Nasdaq Composite (COMP.IND) was 0.76% higher 10,716.12 points. The benchmark S&P 500 (SP500) was up 0.51% to 3,911.79 points, while the blue-chip Dow (DJI) advanced 0.35% to 33,635.75 points.
Of the 11 S&P sectors, eight were trading in the green, led by Communication Services and Consumer Discretionary. Utilities, Consumer Staples and Real Estate were the three losers.
Powell in a speech at an international symposium said that independence is critical to central banks achieving their mandates in that it insulates monetary policy decisions from short-term political considerations. However, the central bank chief did not make any specific comments on the U.S. economy or the path of the Fed’s rate hikes.
“His attempts to impress his hawkish view on markets in recent months ended in failures,” ING said. “Recent data have, on balance, made his job even more difficult.”
“For now, focus is on the size of the next hike. Markets think 25bp is more likely, and both (Raphael) Bostic and Mary Daly said yesterday this is one of the options on the table. But the next step absent an effective pushback from the Fed is for the curve to price out any subsequent hikes, or even to price no more hike in this cycle. Markets don’t need much encouragement to see the dovish side of everything.”
According to the CME FedWatch tool, markets are pricing in a 78.2% probability of a 25 basis point hike at the Fed’s February meeting, with a 21.8% probability of a 50 basis point hike.
Commentary from important figures and brokerages also added to worries over the future of rate hikes. JPMorgan CEO Jamie Dimon in an interview said that the U.S. could enter a “Goldilocks mild recession” and that the Fed many not pivot on its interest rate increases.
UBS said that it had turned pessimistic on the prospect of a soft landing for the economy and that it now expects a hard landing. Meanwhile, Wells Fargo predicted that the S&P 500 (SP500) would see more pain in the near-term amid technical headwinds.
Turning to the bond markets, yields advanced. The 10-year Treasury yield (US10Y) rose 10 basis points to 3.62% and the 2-year yield (US2Y) rose 5 basis points to 4.25%.
Among active stocks, Accolade (ACCD) and Bed Bath & Beyond (BBBY) were the top two percentage gainers on the Nasdaq Composite (COMP.IND) after their quarterly results.
Illumina (ILMN) was the top percentage loser on the S&P 500 (SP500) after issuing disappointing guidance.
Virgin Orbit (VORB) tumbled after its rocket failed to reach orbit.
Now read: S&P, Nasdaq, Dow tick higher after Powell’s premarket speech