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U.S Stocks Open Lower Following the Fed's Decision and Comments on Future Interest Rates

September 19, 2023
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U.S. stock markets commenced the day with slight declines on Tuesday, as investors prepared for the impending interest rate decision by the Federal Reserve, scheduled for Wednesday. Additionally, market participants eagerly anticipated the central bank's commentary regarding the future trajectory of interest rates, given ongoing concerns related to inflationary pressures.

Here's how the major indices were trading at the opening:

  • The S&P 500 registered an 8-point decrease, equivalent to 0.2%, settling at 4,444.
  • The Dow Jones Industrial Average experienced a slight drop of 43 points, or 0.1%, reaching 34,581.
  • The Nasdaq Composite displayed a decline of 40 points, or 0.3%, at 13,669.

On the previous trading day, the Dow Jones Industrial Average (DJIA) inched up by 6 points, representing a 0.02% gain to reach 34,624. The S&P 500 (SPX) advanced by 3 points, or 0.07%, closing at 4,454, while the Nasdaq Composite (COMP) registered a marginal gain of 2 points, or 0.01%, finishing at 13,710.

Factors influencing market sentiment include:

Market Caution: Trading remained cautious on Tuesday, with investors exercising restraint in taking new positions ahead of the Federal Reserve's forthcoming policy announcement.

Federal Reserve's Expected Decision: The market anticipates that the central bank will maintain its policy interest rates within the range of 5.25% to 5.50% following its Wednesday meeting. However, market participants remain watchful for any accompanying guidance on potential future rate increases, given persistent concerns about inflationary pressures. This concern has kept 10-year benchmark Treasury yields near their highest levels since 2007.

Potential "Hawkish Pause": Recent economic data exceeding expectations, coupled with oil prices reaching a 10-month high, may encourage the Federal Reserve to implement a "hawkish pause," as suggested by Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

Oil Price and Inflation: Chevron's CEO, Mike Wirth, has predicted the possibility of oil prices returning to $100 per barrel. West Texas Intermediate crude for October delivery surpassed $92 a barrel on Tuesday, contributing to inflationary concerns.

Housing Starts Decline: U.S. housing starts fell by 11.3% in August, following a revised 2% increase in July. This decline brought starts to their lowest level since June 2020, with mortgage rates exceeding 7%, limiting demand.

Global Market Uncertainty: A sense of uncertainty pervades global markets. While U.S. stocks and bonds have exhibited relative stability, rising oil prices have added complexity to the policy decisions of major central banks, including the Federal Reserve, European Central Bank (ECB), and Bank of England. The ECB recently raised rates by 25 basis points, and the Bank of England is expected to do the same this Thursday.

Challenges to a "Soft Landing": Chief Global Economist Joe Davis at Vanguard noted that while a "soft landing" remains a possibility, it is not the most probable outcome. Achieving such a scenario would require an unlikely "painless disinflation process" toward the target without an economic demand slowdown.

Potential Risks: Davis also expressed concerns that if the Federal Reserve misinterprets the current lull in inflation as validation for its tightening plans, it could expose the markets to the risk of a resurgence in inflation, necessitating further policy tightening and potentially leading to a recession, reminiscent of events in the late 1960s.

Instacart's IPO: Investors were eagerly awaiting the market's response to Instacart's IPO pricing, following the example set by Arm Holdings. Instacart's IPO shares were priced at $30.

Short-Term Vulnerability: Mark Newton, Head of Technical Strategy at Fundstrat, cautioned that unfavorable seasonal trends and the potential for increased volatility in bond yields could render stocks vulnerable in the short term. He emphasized that despite upcoming events like the FOMC meeting and the Bank of Japan, equities and Treasuries have not exhibited sufficient strength to indicate an imminent return to 4,600 on the S&P 500.

In summary, the market remains on alert as it awaits the Federal Reserve's decisions and guidance, with inflationary concerns and various economic factors influencing investor sentiment and market dynamics.

Bryan Curtis
Eric Ng
John Liu
Editorial Board
Bryan Curtis
Adan Harris
Managing Editor
Cathy Hills
Associate Editor

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