U.S. stock indexes wavered in the final hour of trade on Wednesday as hotter-than-expected producer price inflation data and minutes from the Federal Reserve’s September meeting deepened concerns that policy makers will continue to aggressively tighten monetary policy.
How are stock-index futures trading
The Dow Jones Industrial Average
was up 82 points, or 0.3% to around 29,319
The S&P 500
was flat, trading at 3,588
The Nasdaq Composite
traded 27 points higher, or 0.2%, to 10,449
On Tuesday, the Dow eked out a gain of 36 points, or 0.1%, while the S&P 500 declined 0.7% and the Nasdaq Composite dropped 1.1%.
What’s driving markets
The 12-month rate of producer price inflation slowed to 8.5% from 8.7% while the annual core rate, excluding food and energy, was unchanged at 5.6%, but the monthly rate rose 0.4% in September, above forecast, and the monthly core PPI was also up 0.4% in September.
Such data has worsened fears that to curb inflation, the Fed will continue its aggressive rate hikes, which may steer the U.S. economy into a recession.
Fed officials worried about the ongoing and “unacceptably high” inflation as it “had not yet responded appreciably to policy tightening”, minutes of the central bank’s last meeting show on Wednesday.
“Many participants emphasized that the cost of taking too little action to bring down inflation likely outweighed the cost of taking too much action,” the minutes said.
“Ultimately, the Fed is seeking to reduce aggregate demand via a loosening in the labor market, which will reduce wage and services inflation even after the expected near-term disinflation in the goods sector runs its course,” wrote Bob Miller, head of Americas fundamental fixed income at BlackRock, in a note.
“Said more plainly, the pain already evident in some of the most interest rate sensitive parts of the economy (housing), will very likely broaden into more sectors and will intensify with time. Absent a rapid decline in relevant inflation metrics over the next few months, there’s more pain to come,” added Miller.
Traders are awaiting U.S. September consumer prices data on Thursday due at 8:30 a.m. Eastern Time. The September CPI reading, which tracks changes in the prices paid by consumers for goods and services, is expected to show an 8.1% rise from a year earlier, slowing from an 8.3% year-over-year rise seen in August. The core CPI, which omits food and energy, is expected to be running at a year-over-year pace of 6.5%, up from 6.3% in August.
Liz Young, head of investment strategy at SoFi, doesn’t expect a big downside surprise in the CPI data as PPI prices came in above expectations and wage growth stayed steady in last Friday’s jobs report.
“If core CPI comes in at expectations, 6.5% is still pretty troublesome,” Young told MarketWatch via phone. “So I don’t think that this report is going to change the trajectory of the Fed in any way. I think that the hawkish narrative will remain that the market will continue to expect 75 basis point in November.”
“The Fed has been very clear about wanting to go hard at it early, rather than waiting too long and not doing enough,” said Young. “They continue to say they’d rather be forceful in the beginning then not do enough because that would cause more problems down the road.”
The 10-year Treasury yield
which started the year around 1.65% was trading at 3.914% on Wednesday, off 3.1 basis points, after the producer price inflation data and the Fed minutes.
“For us, analyzing the month over month numbers is much more important than looking at the headline,” Zachary Hill, head of portfolio management at Horizon Investments, said in an interview.
“The way we’ve been thinking about it, the last three months annualized [inflation] gives you a kind of a decent idea of where the shorter term trends are around inflation,” Hill said. “We think that’s what the Fed is going to be looking at to see progress towards their 2% goal. And unfortunately, based on various measures, we’re nowhere near that today.”
Adding to the market anxiety, and keeping any Wednesday rally in check, is the continuing volatility in U.K. government bonds after the Bank of England reiterated it would stop supporting the market after Friday.
Investors have become increasingly concerned of late that severe stresses in the financial system may emerge as central banks switch from the era of zero or negative interest rates to sharply higher borrowing costs as they try to tackle inflation at multidecade highs.
The International Monetary Fund Tuesday downgraded its growth outlook for 2023, citing a long list of threats that include Russia’s war against Ukraine, chronic inflation pressures and the lingering consequences of the global pandemic. It also suggested that interest rate increases could spur a harsh global recession.
“We believe the odds of a recession in 2023 are now better than 50%,” Greg Bassuk, chief executive at AXS Investments, wrote in a Wednesday note. “Last week’s market turbulence saw volatility at levels we have not seen since July, and we believe investors should brace for ongoing market volatility and uncertainty throughout Q4, in concert with another likely Fed interest rate hike to the tune of 0.75% in November,” according to Bassuk.
Minneapolis Fed President Neel Kashkari said the Fed is “dead serious” about getting inflation down. Fed vice chair Michael Barr spoke at 1:45 p.m. Fed governor Michelle Bowman will deliver comments at 6.30 pm.
Companies in focus
Shares of Philips
plunged 11.4% after the Dutch tech company issued its second profit warning this year, forewarning that supply chain problems will impact sales and third-quarter profits.
may fire thousands of workers by the end of the month, around the same time the chip manufacturer reports quarterly results amid a tough year for semiconductor makers, Bloomberg reported late Tuesday. The company’s shares rose 1.7% Wednesday.
Shares of PepsiCo Inc. climbed 4.2% Wednesday, after the beverage and snack giant reported third-quarter profit and revenue that rose above expectations and raised its full-year outlook, as higher prices helped offset some volume weakness.
— Jamie Chisholm contributed to this article.