Stock traders remained hesitant to make any huge wagers ahead of Jerome Powell’s speech on Friday, which may provide clues on how hawkish the Federal Reserve will be in the face of mounting economic challenges. After wandering aimlessly earlier Wednesday, the S&P 500 notched a small gain. For a second day in a row, its swing was capped within 1%. Such a stretch of intraday calm occurred only three other times in 2022. Tesla Inc., which is getting ready to trade on a split-adjusted basis Aug. 25, pared most of its rally. Treasury 10-year yields remained above 3% on bets the Fed will continue to lean toward tighter policy.
In the run-up to the all-important Jackson Hole annual conference that will be attended by Powell and policy makers from around the world, traders had to digest more hawkish talk. Fed Bank of Minneapolis President Neel Kashkari said late Tuesday it’s “very clear” that officials need to tighten and bring inflation back under control.
“We don’t expect any shock-and-awe, Volcker-style, hyper-aggressive articulation by Powell or anyone else for that matter,” said Troy Gayeski, chief market strategist at FS Investments, referring to former Fed Chair Paul Volcker, who tipped the economy into recession to conquer inflation in the 1980s. “However, it’s very clear that the rally since the June bottom works directly against what the Fed has been trying to achieve, which is tighter financial conditions to slow economic growth and slow inflation.”
Economic reports have been mixed at best, underlining the delicate task policy makers face in bringing down high inflation without sparking a recession. Data Wednesday showed US pending home sales fell to the lowest since the start of the pandemic. While orders placed with US factories for core capital goods beat forecasts, the picture might change in the coming months amid higher borrowing costs and uncertainty about the growth outlook.
Central banks that hike borrowing costs too aggressively to tame supply-driven inflation risk exacerbating price gains, according to Nobel laureate economist Joseph Stiglitz. Meantime, Guggenheim Partners Chief Investment Officer Scott Minerd is warning investors away from junk bonds and stocks because slowing economic growth and higher interest rates likely will produce deeper losses in risk markets. In late trading, Salesforce Inc. sank on a disappointing revenue forecast, while Snowflake Inc. jumped on an upbeat outlook.
What to watch this week
US GDP, initial jobless claims, Thursday
Kansas City Fed hosts its annual economic policy symposium in Jackson Hole, Wyoming, Thursday
ECB’s July minutes, Thursday
Fed Chair Powell speaks at Jackson Hole, Friday
US personal income, PCE deflator, University of Michigan consumer sentiment, Friday
Some of the main moves in markets
The S&P 500 rose 0.3% as of 4 p.m. New York time
The Nasdaq 100 rose 0.3%
The Dow Jones Industrial Average rose 0.2%
The MSCI World index was little changed
The Bloomberg Dollar Spot Index was little changed
The euro was unchanged at $0.9970
The British pound fell 0.3% to $1.1799
The Japanese yen fell 0.2% to 137.10 per dollar
The yield on 10-year Treasuries advanced six basis points to 3.11%
Germany’s 10-year yield advanced five basis points to 1.37%
Britain’s 10-year yield advanced 12 basis points to 2.70%
West Texas Intermediate crude rose 1.6% to $95.28 a barrel
Gold futures rose 0.2% to $1,765.20 an ounce