US stocks trade mixed as investors await inflation outlook from the Fed

Trader NYSE green

US stocks were mixed Wednesday as investors paused before a key decision by the Federal Reserve coming later in the day.

The Federal Open Market Committee is expected to hold interest rates unchanged and announce no changes to its asset purchases when the decision is released at 2 p.m ET. Robertson Stephens Wealth Management chief economist Jeanette Garretty expects the central bank to continue to avoid announcing a concrete plan to change its bond-buying program.

“This FOMC meeting is likely to be the most important step, signaling to markets that the reduction of QE is conclusively on the discussion agenda, while avoiding any indication of ‘when’ or ‘how,'” she said. “I believe that economic conditions allow, perhaps require, the Fed to scale back QE but I believe that the Fed wishes to still keep this action firmly in ‘maybe’ territory. As such, the wordsmithing of the meeting announcements will be considerable – and tricky.”

Here’s where US indexes stood at the 9:30 a.m. ET open on tk:

The Fed is also expected to speak on the state of the US economy.

“In the last meeting, there was an expression of cautious optimism. In this meeting, I would expect the language to be more one of confirmed optimism, albeit continuing to emphasize the still-large number of unemployed and partially employed and the incomplete vaccination of the population. Investors may be looking for some statement regarding inflation, but I believe the Fed will maintain its viewpoint that current price pressures are transitory,” Garretty added.

Michael Burry is back on Twitter and warning of the biggest market bubble in history. It seems Burry’s concerns only grew during his 10-weak hiatus from Twitter.

Initial public offerings in the US this year have already broken 2020’s record with six months still go in the year. In the first half of this year alone, IPOs have raised $171 billion, surpassing last year’s record $168 billion, with the help of the Federal Reserve’s low interest rate policies.

The low rate environment has also helped the rise of mergers and acquisitions activity, said Goldman Sachs global head of M&A structuring. In a Monday interview, David Dubner he is seeing no signs of stopping for a “superbloom” of M&A activity and separation activity.

West Texas Intermediate crude paused its rally and was down 0.2% to $71.98. Brent crude, oil’s international benchmark, climbed 0.6%, to $74.73 per barrel, at intraday highs.

Gold climbed as much as 0.1%, to $1,863 per ounce.

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US stocks slip after the Fed maintains its support of the economy

FILE PHOTO: U.S. Federal Reserve Chairman Jerome Powell speaks to reporters after the Federal Reserve cut interest rates in an emergency move designed to shield the world's largest economy from the impact of the coronavirus, during a news conference in Washington, U.S., March 3, 2020. REUTERS/Kevin Lamarque
  • US stocks were lower Wednesday after the Federal Reserve maintained its support for the economy.
  • Policymakers held the Fed’s benchmark interest rate near zero and maintained the pace of asset purchases of at least $120 billion per month.
  • Google’s parent Alphabet hit a record intraday high after the tech stalwart crushed earnings.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

US stocks closed lower on Wednesday after the Federal Reserve maintained its support for the economy.

The Federal Open Market Committee concluded its two-day April meeting, announcing it would maintain its ultra-accommodative policy stance. The US central bank held the benchmark interest rate near zero and maintained the pace of asset purchases of at least $120 billion per month.

Chairman Jerome Powell also said that widespread vaccination and “strong policy support” have fueled a considerable pick-up in the pace of economic recovery.

“This new-found patience from the market, even in the face of resoundingly strong economic data and rising inflationary pressures is perhaps testament to the Fed’s credibility and the success of Powell’s communication,” said Seema Shah, Principal Global Investors chief strategist. “Investors appear to have accepted – for now, at least – that it is too soon for the Fed to consider tapering and a more persistent overshooting of the 2% inflation target is required before the central bank will even entertain discussion of rate hikes.

She added however, that at some point over the coming months as inflation picks up, the Fed will need to provide “incremental signals” on when the policy unwind will begin.

Here’s where US indexes stood at the 4 p.m. ET close on Wednesday:

Google’s Alphabet Inc. hit a record intraday high after the company posted earnings that beat Wall Street expectations and showed a surge in ad sales. Meanwhile, Microsoft fell to a three-week low after its earnings disappointed. After the closing bell today, Facebook and Apple report earnings. Find a full calendar of this week’s earnings here.

The US Securities and Exchange Commission is considering new guidance to curb growth projections made by listed SPAC, according to Reuters. The reported crackdown comes as the blank-check frenzy that started 2021 cools off. Analysts from JPMorgan today said that the SPAC boom has peaked, and the decline in SPACs since February has been driven by a slowing of retail money flow into stocks.

Ether hit a new all-time high today of $2,740.17, per CoinDesk data. While ether remains far behind bitcoin’s $1 trillion market value, some experts predict that it may not be long before the runner-up dethrones bitcoin as the world’s biggest cryptocurrency.

West Texas Intermediate crude was up 1.6%, to $63.92 per barrel. Brent crude, oil’s international benchmark, rose 1.3%, to $67.29 per barrel.

Gold climbed as much as 0.1%, to $1,780.40 per ounce.

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US stocks trade mixed as investors mull a wave of corporate earnings and the Fed’s upcoming decision

microsoft
Microsoft reported third quarter earnings that were better than financial analysts expected.

  • US stocks were mixed at the open as investors mulled over a wave of corporate earnings and awaited the FOMC meeting today.
  • The Fed is expected to hold its benchmark interest rate near zero and maintain its pace of asset purchases.
  • Microsoft and Google’s parent Alphabet beat earnings expectations.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

US stocks were mixed on Wednesday as investors digested an onslaught of corporate earnings and awaited the upcoming monetary policy decision from the Federal Reserve.

Google’s parent Alphabet jumped 5.1% in premarket trading after beating earnings expectations and receiving a number of price target upgrades from Wall Street analysts. Microsoft beat earnings per share and revenue expectations, though its stock slipped in the premarket hours.

The Federal Open Market Committee is expected to hold its benchmark interest rate near zero and maintain its pace of asset purchases when it completes its two-day policy meeting. The FOMC will release a statement at 2:00 p.m. ET today with Chairman Powell following up with a press conference at 2:30 p.m ET.

Economists from Jefferies don’t expect there to be many changes from the previous meeting’s statement.

“We expect that the policy statement will reflect the Committee’s acknowledgement that the economy is on a better track and that much progress has been made since the last meeting,” said chief financial economist Aneta Markowska and economist Thomas Simmons. “However, while we don’t know the definition of ‘substantial’ for sure, we do not think that progress will qualify such that it meets the Fed’s threshold to begin the tapering of Fed asset purchases.”

Markowska and Simmons also expect Powell to emphasize the gap between the current state of the labor market and where it was pre-COVID, while emphasizing the Fed’s patience in its approach to raising rates.

Here’s where US indexes stood at the 9:30 a.m. ET open on Wednesday:

After the closing bell today, Facebook and Apple report earnings. Find a full calendar of this week’s earnings here.

Also on the radar is Joe Biden’s first address as president to a joint session of Congress at 9 p.m. ET. The president is expected to push for major spending and tax hikes as part of his American Families Plan.

US bond yields rose on Tuesday night and Wednesday morning, with the yield on the key 10-year US Treasury note climbing to a near 2-week high of 1.645%.

West Texas Intermediate crude rose 1.2%, to $63.62 per barrel. Brent crude, oil’s international benchmark, was up 1%, to $67.06 per barrel, at intraday lows.

Gold climbed as much as 0.5%, to $1,769.80 per ounce.

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The Fed will end a pandemic-era capital break it gave to Wall Street banks

Federal Reserve
  • The Fed will end a pandemic-era rule that eased banks’ capital requirements on March 31.
  • The policy allowed major banks to hold less cash against Treasurys and was meant to spur lending.
  • The announcement fueled a short jump in Treasury yields and dragged bank stocks lower.
  • See more stories on Insider’s business page.

A rule change that eased capital requirements for major banks will expire as planned on March 31, the Federal Reserve said on Friday.

The pandemic-era policy to give banks relief from what is formally called the supplementary leverage ratio allowed Wall Street firms to keep less cash on hand against Treasurys than usual. The rule aimed to free up banks’ abilities to lend during the downturn, as well as cut down on bond-market froth. By no longer counting Treasurys and central bank deposits when calculating the amount of reserves needed, banks would have more cash to lend out to struggling businesses and households.

The SLR relief was slated to expire at the end of the month, yet investors had been looking to the Fed to clarify whether it would extend the rule. While banks’ quarterly reports showed a robust recovery through 2020, some had expected the relief would continue as part of the Fed’s ultra-easy policy stance.

That group’s reaction to the Friday announcement was captured in knee-jerk reactions across markets. The 10-year Treasury yield temporarily shot higher before paring most of the sudden gains. Bank stocks faced more permanent losses, with JPMorgan, Goldman Sachs, and Morgan Stanley all tumbling immediately after the open.

The central bank said it will soon seek public comment on adjustments to the SLR. New dynamics in the bond market and the broad economic recovery could warrant additional rule changes, according to the Fed.

“Because of recent growth in the supply of central bank reserves and the issuance of Treasury securities, the Board may need to address the current design and calibration of the SLR over time to prevent strains from developing that could both constrain economic growth and undermine financial stability,” the Fed added in a statement.

Still, such adjustments won’t erode the strength of banks’ capital requirements, the central bank noted.

The SLR was formed in 2014 out of a broader set of capital requirements put in place after the global financial crisis. The international regulations, known as Basel III, seek to mitigate financial-system risk by mandating that banks maintain certain ratios of cash in accordance with their leverage.

Implementation of the new rules in 2009 gave the Fed a new tool with which to ease monetary conditions during the coronavirus recession.

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