US Stocks Edge Slightly Higher As Investors Brace For Fed's Interest Rate Decision: JPMorgan Analysts See 1% Rally On Most Probable Outcome

Zinger Key Points
  • The market is almost fully discounting a further rate increase by 25 basis points to 5%-5.25%.
  • An analyst took heart from Tuesday's close off the lows, the spike in equity put/call ratio and the strength seen among cryptos.

The U.S. stock market is trading marginally positive around midday Wednesday, ahead of the Federal Reserve's interest rate call, with the market fully discounting a 25-basis-point hike to 5%-5.25% and waiting to see if Fed Chair Jerome Powell hints that this will be the final hike of the cycle that began in March 2022.

Cues From Wednesday's Trading:

Both the S&P 500 index and the Nasdaq 100 moved 0.2% higher, while the Dow Jones Industrial Average traded flat. 

Small caps in the Russell 2000 index rebounded 1% after falling 2.1% Tuesday. Wednesday's economic statistics showed a slightly higher-than-anticipated ISM Services PMI in April (51.9 vs 51.8, up from 51.2) and an ADP employment change in April that was twice as high as projected (296,000 vs 148,000).

U.S. Indices' Performance Tuesday
Index Performance (+/-)   Value
Nasdaq 100 +0.28%   13,122.54
S&P 500 Index +0.20%   4,123.18
Dow Industrials -0.08%   33,659.30

Analyst Color:

Tuesday’s pullback could have been due to pre-Fed jitters, said Carson Group’s Ryan Detrick. The analyst said he sees a silver lining in the cloud.

Giving his takeaways from Tuesday's move, he said stocks finished well off their lows, the equity put/call ratio spiked big and cryptocurrencies did quite well.

A note sent by JPMorgan’s trading desk weighed in on four scenarios for the Fed meeting and the likely market move in each of the situations, Bloomberg reported. Analysts from the firm expect:

  • up to a 2.5% rally if the Fed cut rates, although the probability of such a verdict is less than 1%
  • up to a 1.5% rally if the Fed pauses and the probability of such a move is 5%
  • A 0.5%-1% rally if the Fed hikes and signals a pause; the probability of such a decision is 55%.
  • A 0.75%-1.25% retreat of the Fed hikes and signals more rate hikes to come, with the probability of such a move being 45%

Wednesday's Trading In Major US Equity ETFs: In midday trading on Wednesday, the SPDR S&P 500 ETF Trust SPY was 0.1% higher to $411.40, the SPDR Dow Jones Industrial Average ETF DIA ticked 0.1% down to $336.58 and the Invesco QQQ Trust QQQ was 0.2% higher to $319.82, according to Benzinga Pro data.

Eight out of the 11 S&P sectors were in the green for the session, except for the Energy Select Sector SPDR Fund XLK, down 0.9%, the Technology Select Sector SPDR Fund XLK, down 0.1%, and the Consumer Staples Select Sector SPDR Fund XLP, down 0.1%. The outperformers were the the Communication Services Select Sector SPDR Fund XLC and the the Real Estate Select Sector SPDR Fund XLRE both up 0.5%. 

Latest Economic Data:

The Mortgage Bankers Association’s weekly mortgage applications volume dropped 1.2% in the week ended April 28 after climbing 3.7% the week earlier. 

The ADP released its monthly U.S. private payrolls report for April showing an increase by 296,000 compared to March’s rise by 145,000 and expectations of 148,000. The ADP numbers and the Labor Department’s non-farm payrolls data, though are not perfectly correlated, could give a directional trend.

S&P Global’s final April services sector purchasing managers’ index was revised 0.1 points lower to 53.6. The composite PMI was revised down from 53.5 to 53.4. 

The Institute for Supply Management’s non-manufacturing PMI showed a higher-than-expected print in April at 51.9 versus 51.8, and up from 51.2 in March. 

The key Fed decision is expected at 2 p.m. and traders will likely sift through the post-meeting policy statement to see if there is any change in the language used. The futures market has priced in an 87% probability of a 25-basis-point upward move in the fed funds rate to 5%-5.25%.

Powell will host a press conference at 2:30 p.m. EDT to explain the Fed’s logic behind the rate decision and the rate outlook.

See also: Best Futures Trading Software

Stocks In Focus:

  • Eli Lilly and Company LLY soared 5% after an Alzheimer's treatment slowed disease progression in major trial.
  • Emerson Electric EMR rose 4.2% after reporting higher-than-expected results in Q1. 
  • Advanced Micro Devices, Inc. AMD shares fell close to 8%  after the company’s mixed quarterly results. Rival Intel Corp. INTC rose about 2.55% in sympathy.
  • Kraft Heinz Company KHC rose 4% after the company's stronger-than-expected Q1 results. 
  • Chegg, Inc. CHGG was seen rebounding by about 18% after Tuesday’s 48.41% slump on fundamental worries.
  • Icahn Enterprises L.P. IEP further dropped 18% Wednesday after plunging as much as 20% on Tuesday following short seller Hindenburg Research's attack. 
  • Starbucks Corp. SBUX fell about 9% following the release of its quarterly results.
  • Ford Motor Company F was steady after its Q1 earnings report. 
  • Etsy, Inc. ETSY, Fastly FSLY, Host Hotels & Resorts, Inc. HST, Marathon Oil Corp. MRO, Qorvo, Inc. QRVO and Qualcomm, Inc. QCOM are among the key companies reporting after the market close.

Commodities, Bonds, Other Global Equity Markets:

Crude oil fell 3.9%, with a barrel of WTI-grade crude dropping to $68.70. The United States Oil Fund ETF USO was 3.6% lower to $60.3 per share.  

Treasury yields dropped, with the 10-year yield falling by 5 basis points to 3.38% and the two-year yield down 4 basis points to 3.93%. The iShares 20+ Year Treasury Bond ETF TLT was 0.6% higher on the day. 

The dollar weakened, with the U.S. dollar index, which is tracked by the Invesco DB USD Index Bullish Fund ETF UUP, down 0.5%. The EUR/USD pair, which is tracked by the Invesco CurrecyShares Euro Currency Trust FXE, rose 0.5% to 1.1052.   

European equity indices were mostly all in the green. The iShares MSCI Eurozone ETF EZU rose 0.6%. 

Gold rose 0.4% to $2,024/oz. The SPDR Gold Trust GLD was 0.3% higher at $188.08. Silver ticked 0.2% up to $25.39, with the iShares Silver Trust SLV rising 0.2% to $23.22 per share. Bitcoin BTC/USD fell 1% to $28,370.

Staff writer Piero Cingari updated this report midday Wednesday. 

Read Next: As Key Fed Interest Rate Decision Approaches: Here Are 5 Bond ETFs To Keep An Eye On

Photo via Shutterstock. 

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