Last Updated 4:00PM EST
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Stocks erased losses in the afternoon as Jerome Powell spoke. Investors appeared to like his comments about moderating the pace of future rate hikes, setting the stage for a 50 basis point increase at the next meeting. Indeed, the Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 gained 2.18%, 3.1%, and 4.58%, respectively.
However, Powell reiterated that the central bank would likely have to keep rates at a restrictive level for quite some time, cautioning that it would be dangerous to loosen policy prematurely.
“We need to raise interest rates to a level that is sufficiently restrictive to return inflation to 2%,” Powell noted, which was consistent with what he previously said in November’s meeting. He also stressed that inflation still remains too high, saying that “we have a long way to go in restoring price stability.”
It’s important to note that Powell believes it’s likely the Federal Reserve will need to raise rates higher than what was estimated in September. In addition, there is a lot of uncertainty around what a sufficient terminal rate would be.
Furthermore, Powell reminded listeners that the most recent inflation report, although good, represented only a single month’s worth of data that followed a couple of upside surprises. He pointed out that inflation has so far tended to reaccelerate following each seemingly positive report.
Indices are Mixed; Pending Home Sales Continue to Decline
Last Updated 12:00PM EST
Stock indices are mixed halfway into today’s trading session. As of 12:00 p.m. EST, the S&P 500 and the Dow Jones Industrial Average are down 0.1% and 0.4%, respectively. Meanwhile, the Nasdaq 100 is up 0.3%.
Earlier today, the National Association of Realtors released its Pending Home Sales report, which measures the month-over-month change in the number of home sales that have yet to close but are contracted to be sold. This measure excludes homes that are newly constructed.
During October, Pending Home Sales fell by -4.6% compared to September, which was better than the expected -5% decline. This is on top of an 8.7% decline in the previous report. Of the ten reports issued in 2022, only one of them saw an increase.
In addition, the Pending Home Sales Index came in at 77.1, which is lower than the 125.2 reading from the same time last year. This equates to an approximate decline of 38.4% on a year-over-year basis.
As a result, the overall trend in sales is downwards, as the cost of borrowing continues to increase and more houses hit the market. This has also caused houses to sit for longer periods of time on the market because there are fewer buyers who now have more options to choose from.
Indices are Mixed; JOLTS Report Beats Expectations
Last Updated 10:07AM EST
Stock indices are mixed to start today’s trading session. As of 10:07 a.m. EST, the S&P 500 and the Dow Jones Industrial Average are down 0.2% and 0.4%, respectively. Meanwhile, the Nasdaq 100 is up 0.3%.
On Wednesday, the Bureau of Labor Statistics released its JOLTS Job Openings report, which helps measure job vacancies in the U.S. The number came in at 10.334 million job openings for October, above the expected 10.3 million.
Although lower than the peak of 11.855 million, job openings are still near their highs. In fact, today’s report is higher than last month’s reading. Nonetheless, job openings are on an overall decline, and it will be interesting to see if this trend continues as rates continue to rise while growth slows down.
In addition, it’s important to remember that this data is for October, thus, making it a lagging indicator. Since then, many companies have announced that they will reduce their workforce in order to cut costs.
Indeed, the more recent ADP Nonfarm Employment Change report, which measures the change in non-farm private employment on a month-over-month basis, came in at 127,000 for the month of November – well below the expected 200,000.
It’s worth noting that these figures have been on an overall downtrend since the start of 2022. This indicates that hiring is slowing down in the U.S. economy as companies continue to face macroeconomic uncertainties. Therefore, it’s likely that this will translate into lower job openings going forward.
Futures Up Ahead of Jerome Powell’s Speech
First Published 7:00AM EST
Stock futures climbed early on Wednesday ahead of a speech from Federal Reserve Chairman Jerome Powell.
Futures on the Dow Jones Industrial Average (DJIA) lost 0.06%, while those on the S&P 500 (SPX) lost 0.20%, as of 7:00 a.m. EST, Wednesday. Meanwhile, the Nasdaq 100 (NDX) futures retreated 0.37%.
Powell is expected to speak at the Brookings Institution later on Wednesday, and is likely to touch upon the central bank’s fiscal and monetary policy paths. Experts are anticipating a half-point interest rate increase in the next rate hike cycle, after four consecutive 75 basis-point hikes. As the head of the bank, Powell’s speech will be a solid indicator of the tone of the next FOMC meeting. The possibility of a pause or a pivot is very less, but any comment indicating those can induce a rally in the markets.
The indexes ended Tuesday on a mixed note. The S&P 500 and the Nasdaq 100 lost 0.16% and 0.73% respectively at the end of the regular trading session. On the other hand, the Dow just managed to touch the green line.
In recent days, stocks have been under pressure due to China’s staunch zero-COVID policy and the Chinese protests against it. Nonetheless, the rise in the number of vaccinations for elderly citizens and a drop in the number of new cases.
On the economic front, the ADP private payrolls report is due out Wednesday. Importantly, ADP is responsible for about a fifth of America’s private sector payrolls.
Also, the Thanksgiving weekend saw an increase in the number of holiday shoppers as well as a year-over-year spike in the average amount spent per shopper. To some extent, this indicates that consumers are at ease with the economic environment and have not made dire changes to their household expenses yet. This can, however, be a double-edged sword. While happy consumers indicate a strong economy, this behavior can also encourage the Fed to remain aggressive in order to weaken the retail sector and stabilize prices.
