Stocks Slump to Bottom of Bullish Uptrend Channel Ahead of Fed Chair Powell's Speech

On Wednesday morning, U.S. stock indexes exhibited primarily positive momentum ahead of the Federal Reserve's impending interest-rate decision and Chair Powell's forthcoming remarks. In parallel, oil prices retreated from their recent 10-month highs, and Treasury yields paused their four-session ascent.

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Here's a breakdown of how the stock indexes were performing:

• The S&P 500 (SPX) registered an uptick of 11 points, equating to a 0.3% increase, bringing the index to 4,455.
• The Dow Jones Industrial Average (DJIA) demonstrated robust performance, advancing by 200 points, or 0.6%, reaching a level of 34,717.
• The Nasdaq Composite (COMP) experienced a marginal decline of 12 points, representing less than a 0.1% decrease, resting at 13,667.

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In the preceding trading session, the Dow Jones Industrial Average recorded a dip of 107 points, marking a 0.31% decline to settle at 34,518. The S&P 500 also experienced a slight contraction, shedding 10 points, equivalent to a 0.22% decrease, reaching a level of 4,444. Simultaneously, the Nasdaq Composite declined by 32 points, constituting a 0.23% reduction, and concluding the session at 13,678.

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The prevailing market sentiment is predominantly influenced by the impending Federal Open Market Committee (FOMC) policy decision, scheduled for release at 2 p.m. Eastern Time.

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Market participants have largely priced in a 99% probability that the Federal Reserve will maintain interest rates at their current range of 5.25% to 5.50% during Wednesday afternoon's announcement, according to the CME FedWatch Tool. Concurrently, the likelihood of a 25-basis-point rate hike to a range of 5.50% to 5.75% at the subsequent November meeting is currently estimated at 29%.

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Nevertheless, recent data indicating stronger-than-expected economic performance in the United States, coupled with this week's surge in oil prices to a 10-month high, have ignited concerns regarding the persistence of inflationary pressures. This has raised the possibility that the central bank may need to maintain higher borrowing costs for an extended duration.

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Thierry Wizman, Global FX and Interest Rates Strategist at Macquarie, pointed out that the spike in oil prices could make the Federal Reserve more cautious in signaling a dovish stance during its September meeting. He noted that traders anticipating relief from the Fed in response to elevated oil prices might be disappointed, especially if Chair Powell cites high oil prices as a justification for adopting a "hawkish" tone.

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Hence, the critical elements for market developments will be the Fed's forthcoming "dot plot" forecast for policy interest rates, scheduled for release at 2 p.m., and Chair Jerome Powell's subsequent press conference, set to commence at 2:30 p.m.

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Stephen Innes, Managing Partner at SPI Asset Management, remarked that ahead of the FOMC meeting, yields on 10-year U.S. Treasuries have reached new cycle highs. Additionally, investors seem inclined to maintain their recently established long positions in the U.S. dollar, indicating a prevailing sentiment favoring a "hawkish" direction.

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Treasury yields exhibited a retracement from multi-year highs on Wednesday, with the 2-year Treasury yields declining by 5.1 basis points to 5.058%, retracting from the 17-year highs of 5.109% observed in the prior session. Similarly, the yield on the 10-year Treasury dropped by 3.7 basis points to 4.329%, following the level of 4.366% recorded on Tuesday.

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