U.S. stocks trade mixed as market awaits possibly the biggest Fed rate hike since 2000

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By Frances Yue and Barbara Kollmeyer

Oil prices climb as EU proposes Russian oil ban

U.S. stock indexes traded little changed Wednesday midday, ahead of the outcome of a two-day Federal Open Market Committee meeting that is expected to deliver the first 50 basis-point interest rate hike since 2000.

Oil prices were up on news that the EU has proposed a ban on Russian oil.

How are stocks trading?

On Tuesday, the Dow industrials rose 67.29 points, or 0.2%, to close at 33,128.79, the S&P 500 gained 0.5% to finish at 4,175.48. The Nasdaq Composite added 0.2% to end at 12,563.76.

Read:’Bubble stocks popped’ but it’s still not safe to buy them, says Ray Dalio, founder of world’s biggest hedge fund

What’s driving markets?

Alongside a half percentage point interest rate hike, the Federal Reserve is expected to announce the start of “quantitative tightening” when the central bank’s decision is announced at 2 p.m. Eastern Time. Investors will also focus on a news conference with Fed Chairman Jerome Powell at 2:30 p.m. Eastern Time. Clarity from the Fed on size and scope of future rate increases could give beleaguered stocks a lift, say some analysts.

Read:Fed on track for biggest rate hike since 2000

“We’re tilting our positioning toward areas of the market that can perform well in an environment of rising rates, high inflation, and elevated volatility,” Mark Haefele, chief investment officer at UBS Global Wealth Management, wrote in a Wednesday client note.

“We prefer commodities, value stocks, and the energy and healthcare sectors,” he wrote, adding that it is better to position for inflation, rather than recession, which “is still only a possibility.”

Rob Haworth, senior investment strategist at U.S. Bank Wealth Management, is waiting for more direction from the Fed. “I think the market is priced for the Fed to be fairly aggressive. What that leaves us, is thinking that there’s some upside risk here,” Haworth said in an interview.

“But a lot of that depends on what the Fed says and what Jerome Powell says about the forward view. Do they affirm what the market is saying and projecting, which is somewhat beyond the current dot plots, or do they talk about more data dependence and reacting more to the data as it comes forward?”

Bryce Doty, senior portfolio manager at Sit Fixed Income, said that as Powell kicks off his aggressive path to tighter financial conditions, “there is more pain to come as yields continue to move higher,” even with “the carnage incurred by bond investors so far this year.”

“While the worst may be over in terms of bond market losses with the Bloomberg Aggregate Bond Index down 9.5% in the first four months of the year, inflation is still a problem,” Doty said in emailed comments Wednesday.

The yield on the 10-year Treasury note was down 1 basis point at 2.989%, while that of the 2-year was up 7.4 basis points to 2.805%.

In U.S. economic data, private payrolls rose by 247,000 in April, according to the ADP National Employment Report released Wednesday. Economists polled by The Wall Street Journal had forecast a gain of 390,000 private sector jobs.

“In April, the labor market recovery showed signs of slowing as the economy approaches full employment,” said Nela Richardson, chief economist at ADP.

Meanwhile, U.S. trade deficit jumped 22.3% to record $109.8 billion in March, the U.S. Census Bureau and the U.S. Bureau of Economic Analysis said Wednesday. U.S. imports climbed 10.3% to $351.5 billion, while U.S. exports increased 5.6% to $241.7 billion in March.

In addition, the Institute for Supply Management purchasing managers index for services sector showed weaker new-orders growth and employment, with the number dropping to 57.1% in April from 58.3%, below forecast.

Oil was also in focus, with prices for both Brent and West Texas Intermediate crude up almost 4% each after the European Union proposed banning Russian oil imports under a phased six-month plan, and refined products within a year.

The move would be part of a sixth batch of EU sanctions against Russia over its invasion in Ukraine that began in late February.

Investors are also digesting a fresh batch of corporate earnings on Wednesday also, with results expected from eBay Inc. (EBAY)and Etsy Inc. (ETSY), among others, after the close.

-Frances Yue

Which companies are in focus?

How did other assets fare?


(END) Dow Jones Newswires

05-04-22 1234ET

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