U.S. stocks opened higher Wednesday, shaking off modest weakness seen earlier after The Wall Street Journal reported that policy makers appeared to be on track to deliver another 75 basis-point rate increase this month.
Investors were also awaiting a speech from Federal Reserve Vice Chair Lael Brainard, among other senior Fed officials, along with the release of the latest Fed-compiled Beige Book.
The Dow Jones Industrial Average
gained 50 points, or 0.2% to around 31,210
The S&P 500
added 14 points, or 0.3% to 3,921
advanced 74 points, or 0.6% to 11,616
On Tuesday, the Nasdaq Composite dropped 0.7%, logging its seventh straight daily decline and marking its longest losing streak since 2016. The Dow Jones fell 173 points, or 0.6%, while the S&P 500 declined 0.4%.
What’s driving markets
A report published by The Wall Street Journal said Federal Reserve Chairman Jerome Powell’s commitment to reducing inflation even if it increases unemployment appeared to put the central bank on track to hike interest rates by 0.75 percentage point, rather than half of a percentage point, when policy makers meet later this month.
Traders had already largely priced in a 75 basis point move. Fed-funds futures traders priced in an 82% chance of a 75 basis point move following the report, up from 73% on Tuesday, according to the CME FedWatch tool.
“Increasing expectations of a more aggressive Fed continued to hurt equities, as higher rates mean higher borrowing costs for companies, as well as lower present values, especially for high-tech firms, which are usually valued by discounting expected cash flows,” said Charalampos Pissouros, senior investment analyst at XM, in a note. “That’s maybe why the tech-sensitive Nasdaq was Wall Street’s main loser yesterday.”
A sharp surge in Treasury yields pressured stocks on Tuesday. The benchmark 10-year yield
rose 15 basis points, the largest one-day climb in a month. Yields pulled back Wednesday, with the 10-year rate down 4.6 basis points to 3.294%.
The U.S. dollar
hit a new 20-year high on Wednesday just shy of the 111 level.
That’s as investors assess the latest data on the U.S. economy, as well as the efforts by European governments to mitigate the impact of surging energy prices.
Brainard hasn’t talked about the economy in depth since April. Later in the week, Chair Jerome Powell will participate in a moderated discussion on Thursday, and Fed Gov. Christopher Waller is due to speak on Friday.
“The Fed speaker schedule this week looks designed to give us heavy guidance ahead of the blackout period, and I suspect that guidance will favor a 75bp move in September,” said Tim Duy, chief U.S. economist at SGH Macro Advisors.
The Fed’s own Beige Book of economic anecdotes is due for release at 2 p.m. Eastern.
The Bank of Canada could lift rates by as much as 100 basis points, in a decision due to be announced at 10 a.m. Eastern. The European Central Bank on Thursday could lift rates as much as 75 basis points on Thursday.
Companies in focus
said Wednesday it is scrapping a retirement policy, clearing the way for the current CEO, 63-year-old Brian Cornell, to stay for about another three years. Target shares were up 0.3%.
Shares of United Airlines Holdings Inc.
rose 1.4%. after the air carrier raised its third-quarter revenue growth outlook, citing continued “strong” demand exiting a “robust” summer.
shares fell 6.5% after the China-based electric vehicle maker reported a wider-than-expected second-quarter loss as revenue rose above forecasts but gross margins contracted, and provided a downbeat revenue outlook.