U.S. stocks traded higher in early afternoon on Wednesday as investors assessed remarks by Federal Reserve Vice Chair Lael Brainard and other senior Fed officials, while awaiting the release of the latest Fed-compiled Beige Book.
The Dow Jones Industrial Average
rose 267 points, or 0.8%, to 31,413.
The S&P 500
added 45 points, or 1.2%, to trade at 3,954.
advanced 151 points, or 1.3%, to 11,694
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
Brainard, the No.2 official at the central bank, said on Wednesday that the Fed will need to raise the policy rate further and keep them at high levels for some time to “provide confidence that inflation is moving down to target.”
“We are in this for as long as it takes to get inflation down,” Brainard said in a speech to a conference hosted by The Clearing House and Bank Policy Institute. Stock-market investors took the comments in stride, with major indexes ticking up to new session highs following Brainard’s remarks.
Stocks shook off a premarket wobble seen after 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 80% chance of a 75 basis point move following the report, up from 73% on Tuesday, according to the CME FedWatch tool.
“I still think they do 75 basis points, just because the market is largely price smart –they take it and they see what happens. But to me at least, inflation is set to roll over and possibly pretty hard,” said Brent Schutte, chief investment officer at Northwestern Mutual Wealth Management. “My worry is that the Federal Reserve thinks they have to keep hiking longer than what they really need to, because I do think it is starting to wear off.”
Stocks have retreated well off their mid-August highs as a summer bounce was brought to an end as Federal Reserve officials signaled they were unlikely to pivot away from higher interest rates in 2023.
“Today’s bounce, in isolation might seem strange,” said Keith Buchanan, portfolio manager at GLOBALT Investments. But context also matters, he said, particularly with the market’s sharp reversal in the past two weeks as more investors abandoned the idea of the Fed backing off its inflation fight.
“I don’t necessarily think that this is the markets looking through or doubting the Federal Reserve’s conviction,” he said, in an interview.
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 7.7 basis points to 3.271%.
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.
The U.S. trade deficit fell 12.6% in July to a nine-month low of $70.6 billion, adding to mounting evidence confirming the U.S. did not fall into a recession in the first half of 2022.
In the final week before Fed officials enter a blackout period ahead of their Sept. 20-21 policy meeting, investors were parsing speeches for more clues on future interest rate hikes.
Cleveland Fed President Loretta Mester said Wednesday that the economy will experience slow economic growth this year and next, but she did not discuss whether she favored another 0.75 percentage point rate hike at the meeting or slowing down to a half-percentage point increase.
Powell will participate in a moderated discussion on Thursday, and Fed Gov. Christopher Waller is due to speak on Friday.
The Fed’s own Beige Book of economic anecdotes is due for release at 2 p.m. Eastern.
The Bank of Canada lifted its overnight target rate by three-quarter percentage points to 3.25%, following a surprise increase of a full percentage point in July. The European Central Bank 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 3.2%.
Shares of Twitter Inc.
jumped 5.2% Wednesday, after The Wall Street Journal reported that a judge has ruled Elon Musk can amend his countersuit against the social-media company he agreed to buy for $44 billion to include a whistleblower report but denied Musk’s request to postpone the trial to November.
Shares of United Airlines Holdings Inc.
rose 2.1%. after the air carrier raised its third-quarter revenue growth outlook, citing continued “strong” demand exiting a “robust” summer.
shares gained 3.2% despite 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.
biggest event of the year kicked off Wednesday with Chief Executive Tim Cook saying that the consumer-electronics giant will focus on its iPhone, Apple Watch and AirPod lineups with updates. Apple shares were little changed.
––Steve Goldstein contributed to this report.