Markets Brace For Fed Meeting: US Stocks In Decline, With Microsoft Headed For 2023's Worst Day

In the early hours of trading on Wednesday, a sense of caution and higher risk aversion prevails among investors as they eagerly await the Federal Reserve’s decision on interest rates and Jerome Powell‘s remarks during the press conference.

The Fed is likely to raise rates by 25 basis points to 5.25%-5.5%, reaching the highest level since February 2001. Much of the market’s reaction after the announcement will depend on how the Fed will signal its future intentions.

Technology stocks in the Nasdaq 100 have slipped around midday, with Microsoft Corp. MSFT down by 4.4%, marking its worst session of the year. The decline comes after the company indicated higher costs in the AI sector and a less optimistic outlook for the cloud-computing business.

Amid a decline in tech stocks, Google parent company Alphabet Inc. GOOG GOOGL stands out, with its shares rising by 5.6% following the company’s better-than-expected second-quarter results.

Cues From Wednesday’s Trading:

The S&P 500 Index eased 0.2%, while the Nasdaq 100 dipped 1%.

Blue chip stocks in the Dow Jones are marginally higher, after marking the twelfth straight day of increases on Tuesday. Small caps in the Russell 2000 gained 0.4%.

Analyst Color:

A 25-basi- point hike on Wednesday is a given but the future rate trajectory will be data-dependent, said John Lynch, Comerica's chief investment manager.

“Fed Chair Jerome Powell’s recent comments following the June FOMC meeting have taken a hawkish stance, suggesting that at least two more interest rate increases may be necessary this year to bring inflation down to their 2% target," the analyst said. The softer-than-expected inflation data since the last meeting has given rise to hopes that the Fed may be nearing the end of its tightening cycle, he said.

"Given the uncertainty around the effects of monetary policy lags, we expect to see the Fed adopt a wait-and-see approach on additional rate increases," he added.

Wedensday’s Trading In Major US Equity ETFs: In midday trading on Wednesday, the SPDR S&P 500 ETF Trust SPY was 0.2% lower to $455, the SPDR Dow Jones Industrial Average ETF DIA ticked 0.1% higher to $354.65 and the Invesco QQQ Trust QQQ was 0.6% lower to $376.60, according to Benzinga Pro data.

Among different sectors, the best performer was the Communication Services Select Sector SPDR Fund XLC, aided by Alphabet’s gains, followed by the the Utilities Select Sector SPDR Fund XLU, up 0.4%.

The laggard was the the Technology Select Sector SPDR Fund XLK, down 1.5%, followed by the Materials Select Sector SPDR Fund XLB, down 0.8%.

Latest Economic Data:

The Mortgage Bankers Association reported a 1.8% decline in weekly mortgage application for the week ended July 14, the first drop in three weeks.

The Commerce Department said new home sales fell 2.5% to 697,000 in June 2023, down from May’s 15-month high of 715,000 and below the market consensus of 725,000.

The Energy Information Administration stated that U.S. crude oil inventories declined by 600,000 barrels in the week ended July 21, below expectations of a 2.348-million barrel drop.

The Fed is due to announce its monetary policy decision at 2 p.m. EDT through a post-meeting policy statement. Powell will host a press conference at 2:30 p.m. EDT to explain the decision and offer insights into the future rate trajectory.

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Stocks In Focus:

• Union Pacific Corp. UNP rose over 10%, leading S&P 100 mega cap stocks despite missing earnings forecasts. Jim Vena‘s appointment as CEO and Wall Street’s approval prompted the move.
• Boeing Co. BA rose nearly 7% after beating the Street’s estimates.
• General Dynamics Cop. GD rose 3% after Q2 earnings beat.
• Snap, Inc. SNAP shares plummeted about 20% after the company issued lackluster guidance.
• CoStart Group Inc. CSGP fell 8% after missing revenue estimates.
• Teladoc Health Inc. TDOC rose 25% after beating Wall Street expectations on Q2 results.
• Companies reporting after the market close include Edward Life Sciences Corp. EW, Chipotle Mexican Grill, Inc.  CMG, Lam Research Corp. LRCX, Meta Platforms, Inc. META, O'Reilly Automotive, Inc. ORLY, Teradyne, Inc. TER and Western Union Co. WU.

Commodities, Bonds, Other Global Equity Markets:

Crude oil fell 0.5%, with a barrel of WTI-grade crude trading at $78.80. The United States Oil Fund ETF USO was 0.6% lower to $70.70.  

Treasury yields were steady, with the 10-year yield at 3.88% and the two-year yield flat at 4.89%. The iShares 20+ Year Treasury Bond ETF TLT was 0.2% higher for the day. 

The dollar fell, with the U.S. dollar index, which is tracked by the Invesco DB USD Index Bullish Fund ETF UUP, down 0.2%. The EUR/USD pair, which is tracked by the Invesco CurrecyShares Euro Currency Trust FXE, was 0.2% higher to 1.1075.

European equity indexes closed in the red. The SPDR DJ Euro STOXX 50 Etf  FEZ feel 0.4%. 

Gold rose 0.4% to $1,972/oz. The SPDR Gold Trust GLD was 0.4% higher to $183. Silver fell 0.7% to $24.87, with the iShares Silver Trust SLV up 0.9% to $22.8. Bitcoin BTC/USD was 0.3% up to $29,319.

Staff writer Piero Cingari updated this report midday Wednesday. 

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