Last Updated 4:08 PM EST
Stock indices finished today’s trading session in the red despite being positive for most of the day. The Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 decreased by 0.1%, 0.33%, and 0.05%, respectively.
The utilities sector remained the session’s laggard, as it fell by 3.35%. Conversely, the energy sector (XLE) overtook the consumer staples sector to finish as the session’s leader, with a gain of 0.82%.
Furthermore, the U.S. 10-Year Treasury yield fell slightly to 3.9%. Similarly, the Two-Year Treasury yield also decreased, as it hovers around 4.29%. This brings the spread between them to -39 basis points. The negative spread indicates that investors still have fears of a recession.
Compared to yesterday, the market is pricing in a higher chance of a higher Fed Funds rate for the end of the year. In fact, the market’s expectation for a rate in the range of 4% to 4.25% is 11.1%, which is down from yesterday’s expectations of 12.4%.
In addition, the market is now also assigning a 31.6% probability to a range of 4.5% to 4.75%. For reference, investors had assigned a 27.4% chance yesterday.
Federal Reserve Releases Meeting Minutes
Last Updated 2:15PM EST
Stocks are in the green heading into the final hours of today’s session. As of 2:15 p.m. EST, the Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 are up 0.4%, 0.2%, and 0.4%, respectively.
The Federal Reserve meeting minutes were released today, which showed that the central bank isn’t done raising interest rates. It wants to make sure that inflation is well on its way to 2% before it becomes more dovish.
Unfortunately, there just isn’t any evidence that inflation is falling in a way that’s convincing enough. As a result, the Federal Reserve views the risks of too much action as more favorable than not enough action. Although FOMC members expect to eventually decelerate the pace of interest rate hikes, they didn’t announce a timeframe.
The cause of inflation can be attributed to the usual factors: supply chain problems and a labor shortage.
In addition, projections for the economy were lowered to 0.2% in 2022 and 1.2% in 2023.
Stocks are Higher as Bond Yields Fall
Last updated: 12:00PM EST
Equity markets are in the green halfway into the trading session. As of 12:00 p.m. EST, the Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 are up 0.5%, 0.4%, and 0.6%, respectively.
The utilities sector (XLU) is the laggard so far, as it is down 1.6%. Conversely, the consumer staples sector (XLP) is the session’s leader with a gain of 1.3%.
WTI crude oil is below the $90 per barrel level after its brief rally above it. This comes as OPEC slashed its oil demand outlook for 2022 and 2023.
Meanwhile, bond yields are slightly lower as the U.S. 10-Year Treasury yield is now hovering around 3.92%. This represents a decrease of 3.1 basis points from the previous close.
Similar movements can be seen with the Two-Year yield, which is now at 4.30%. However, the spread between the 10-Year and Two-Year U.S. Treasury yields is still negative, as it currently sits at -38 basis points.
Stocks are Slightly Higher; Mortgage Applications Continue Falling
Last updated: 10:00AM EST
Stocks are in the green after the first 30 minutes of today’s trading session. As of 10:00 a.m. EST, the Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 are up 0.5%, 0.3%, and 0.3%, respectively.
On Wednesday, the Mortgage Bankers Association released its weekly report for the U.S. 30-Year mortgage rate. The mortgage rate increased to 6.81% compared to last week’s reading of 6.75%.
Due to the higher rates, the number of mortgage applications decreased week-over-week by -2%, following last week’s whopping decrease of -14.2%. This indicates that sentiment in the real estate market is falling, which is consistent with other data that has been released so far.
In addition, mortgage application volume is down substantially on a year-over-year basis, with the Mortgage Market Index at 214.3 compared to 686.1 on October 13, 2021.
Futures Trim Gains after PPI Data
Last updated: 8:48AM EST
The U.S. Bureau of Labor Statistics released the Producer Price Index (PPI) data today. This data indicated that final demand PPI was up 0.4% in September on a seasonally-adjusted basis, double the forecasts of 0.2%.
This data also indicated that inflation came in higher than expected as around 66% of the rise in the index for final demand was a result of a 0.4% increase in prices for final demand services.
Futures on the Dow Jones Industrial Average (DJIA) were up 0.2%, while those on the S&P 500 (SPX) gained 0.4%, as of 8:46 a.m. EST, Wednesday. Meanwhile, the Nasdaq 100 (NDX) futures ticked higher by 0.5%.
Last updated: 7:31AM EST
Stock futures climbed early on Wednesday as investors looked forward to September’s producer price index (PPI) later in the day. Moreover, minutes from September’s Federal Reserve meeting are also expected to be broadcast on Wednesday.
Futures on the Dow Jones Industrial Average (DJIA) climbed 0.44%, while those on the S&P 500 (SPX) gained 0.65%, as of 7.15 a.m. EST, Wednesday. Meanwhile, the Nasdaq 100 (NDX) futures advanced 0.80%.
What Happened on Tuesday
The S&P 500 and the Nasdaq 100 ended the regular trading session Tuesday with losses of 0.65% and 1.24%, respectively. The Dow, on the other hand, ended in the green, with 0.12% gains.
The Nasdaq Composite slipped into the bear market for the second time this year, joining the S&P 500 and Dow, which are already in the red zone.
The Bank of England’s reiteration that its market intervention to support pension funds struggling from interest-rate increases will be concluded on Friday as per schedule. This remark led U.S. bond yields to tick up, putting pressure on stocks.
Also, U.S. President Joe Biden said that a recession is unlikely, and will be very mild if it hits at all.
Economic Data on Deck
The PPI will give us a peek into the wholesale prices for September. The Dow Jones reveals that economists expect PPI to have increased slightly by 0.2% in September, after reducing by 0.1% in August.
However, the most important economic data that investors are waiting for is the consumer price index (CPI), which is set to be released on Thursday.
Despite their short spurt of excitement, investors are largely expected to remain focused on the strong labor market, which is not a welcome situation. One of the Fed’s goals is to weaken the labor market enough to stabilize prices, but that is far from reality, currently.
In a choppy environment like this, it is wise to keep a long-term view and to remain invested (or increase one’s position) in trillion-dollar stocks like Apple (AAPL) and Alphabet (GOOGL), that are well-capitalized to come out of even a deep recession practically unscathed.
Saudi-U.S. Oil Relations Get Murky
Also, it was revealed that U.S. requests to delay the decision to cut oil production by a month had fallen into deaf ears, as OPEC went ahead and made the production cut by 2 million barrels a day, just days after the request was made. Sources familiar with the matter said that the U.S. had warned Saudi Arabia that the hasty production cut will make it clear that the Middle-Eastern country is siding with Russia in the war.
With the U.S. midterm elections around the corner, Biden’s effort to influence OPEC’s decision was diluted, and is likely to be a matter of concern for the Biden administration during the elections. Elevated gas prices and inflation have been the issues that Biden promised to address in his campaign.
The Biden administration is said to be considering ways to retaliate against the defiance, including withdrawing from participation in Saudi Arabia’s Future Investment Initiative investment forum. However, given the increased importance of Saudi Arabia in the U.S. oil scene after the banning of Russian oil, it is highly unlikely that the government will take any steps to challenge its relationship with the kingdom.
Unsurprisingly, these developments are also keeping the energy sector volatile.
