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Market Snapshot: Dow trades flat but Nasdaq slides ahead of Fed decision

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U.S. stock benchmarks traded mostly lower Wednesday as investors awaited the outcome of an eagerly anticipated Federal Reserve meeting which may provide clues to the long-term path of monetary policy.

What are major benchmarks doing?
  • The Dow Jones Industrial Average
    DJIA,
    +0.28%

    was bouncing between small gains and losses, up 24 points, or 0.1%, near 32,850, at last check.
  • The S&P 500
    SPX,
    -0.47%

    was off 23 points, or 0.6%, at 3,940.
  • The Nasdaq Composite
    COMP,
    -1.17%

    index lost 168 points, or 1.3%, to trade near 13,304.

Stocks ended mostly lower Tuesday, with the Dow falling 127.51 points, or 0.4%, and the S&P 500 edging down 0.2% after closing at records in the previous session. The Nasdaq Composite held on to a gain of 0.1%.

What’s driving the market?

The Fed isn’t expected to make any tweaks to interest rates or asset purchases, but investors are eager to see the central bank’s latest projections on the economic outlook and the forecast long-term path of interest rates in the so-called “dot plot.” Forecasts for a surge in economic growth as vaccine rollouts finally quell the pandemic and as another $1.9 trillion of COVID aid boosts spending have lifted inflation expectations.

Since the Fed last released forecasts in December, the yield on 10-year U.S. Treasury note has risen by about 0.7 percentage point as investors have priced in higher interest rates and inflation. That in turn has contributed to a rotation away from previously highflying growth stocks toward more cyclically sensitive stocks.

Federal Reserve Chairman Jerome Powell “is in a difficult spot, as he doesn’t want to hike rates anytime soon but at the same time, he can’t ignore the rise in yields and the increasing chatter that higher inflation is in the pipeline,” said David Madden, market analyst at CMC Markets, in a note.

“Mr. Powell will probably make it clear that the Fed won’t be pushed around by the bond market and that it will stay the course with respect to its policy as its economic aims are far from being achieved,” he said.

See: What would cause the Fed to take a U-turn? Hint: a lot more than some high inflation readings

The Fed will release its policy statement at 2 p.m. Eastern, with Powell’s news conference to follow at 2:30 p.m.

Read:Fed to stay dovish this week as Powell channels his inner Gary Cooper calm

Other analysts agreed that the Fed was unlikely to change its tune.

“While the Powell Fed has become more forthcoming, that means that anything it does say will be acted on. So, unless the Fed wants markets to react, it has to revert to obscurity — which is what I expect,” said Brad McMillan, chief investment officer at Commonwealth Financial Network.

Besides, the Fed has consistently signaled it plans to keep current policy in place for some time, until the economy shows clear signs of above-trend growth and inflation, he said, in a note. “Of its two mandates, employment and inflation, the Fed is choosing to focus on employment (which is still well underwater) and not on inflation (which is not a problem),” McMillan said in a note.

Also see: Investors say regulatory relief for bank capital rules could ease pressure on bond market

Looking past the gyrations caused by rising bond yields, there are additional reasons to be cautious, said Katie Stockton, a market technician and founder of Fairlead Strategies.

“In the near term, I’m seeing some signs of exhaustion,” Stockton said in an interview. That’s more evident in small-cap stocks
RUT,
-0.85%

that have had a big run-up, she said. “The lack of momentum since the February highs mean we’re not out of the woods yet.”

Stockton is paying close attention to the CBOE Volatility Index
VIX,
+4.80%
,
which has recently tested lows not seen since last March. “A couple of daily closes below 20 to me would be a bullish development for equity markets because it would suggest we’re getting into a lower volatility regime, characteristic of the pre-COVID era.”

Housing data was mixed in February, with starts at a 1.42 million seasonally adjusted annual rate badly missing the consensus forecast of a 1.75 million rate, while permits were higher than forecast, at 1.682 million.

See: Markets set up for disappointment from Fed meeting as bond yields renew rise

Which companies are in focus?
  • Uber Technologies Inc.
    UBER,
    -4.54%

    late Tuesday said it would classify tens of thousands of drivers in the United Kingdom as “workers” starting Wednesday, meaning they are still not considered employees but will be entitled to a minimum wage, holiday pay and possibly pensions. The move comes after a court ruling. Shares were down 4.6% in midmorning trade.
  • Plug Power Inc.
    PLUG,
    -15.60%

    shares slid more than 15% after the fuel-cell company late Tuesday said it would restate financial statements for fiscal years 2018 and 2019 as well as some recent quarterly filings.
  • Coherent Inc.
    COHR,
    +2.65%

    shares gained 2.4% Wednesday, after Lumentum Holdings Inc.
    LITE,
    -2.25%

     said it had raised its buyout bid for the laser technology company, in response to a bid from II-VI Inc.
    IIVI,
    +0.93%

     that Coherent had determined was “superior” to the previous agreed-on deal with Lumentum.
  • Micron Technology Inc.
    MU,
    +0.89%

    shares ticked up 0.9% Wednesday after announcing Tuesday afternoon that it would drop development of a next-generation memory product it had once developed in concert with Intel Corp.
  • Alcoa Corp.
    AA,
    +3.08%

    shares gained 2.6% after the company scored a buy rating from Deutsche Bank and a price target increase, to $36 from $22.
What are other assets doing?

Read next: Value stocks are making a comeback. Don’t get left behind, these analysts say

Market Extra: Fed should ‘switch’ up its playbook and buy more Treasurys, fewer mortgage bonds, urge analysts

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