Last Updated 4:00 PM EST
Shares erased losses in the afternoon as Jerome Powell spoke. Investors seemed to appreciate his comments on the moderation in the pace of future rate hikes, paving the way for a 50 basis point increase at the next meeting. Indeed, the Dow Jones Industrial Average, S&P 500 and Nasdaq 100 gained 2.18%, 3.1% and 4.58% respectively.
However, Powell reiterated that the central bank is likely to keep rates tight for some time, warning that easing policy prematurely would be dangerous.
“We need to raise interest rates to a level restrictive enough to bring inflation down to 2%,” Powell noted, which was consistent with what he previously said at the November meeting. He also pointed out that inflation still remains too high, saying “we still have a long way to go to restore price stability.”
Importantly, Powell thinks it is likely that the Federal Reserve will have to raise rates higher than what was estimated in September. Moreover, there is a great deal of uncertainty as to what a sufficient terminal rate would be.
Additionally, Powell reminded listeners that the latest inflation report, while good, represented only one month of data which followed with some positive surprises. He pointed out that inflation has so far tended to reaccelerate after each seemingly positive report.
The indices are mixed; Pending home sales continue to decline
Last Updated 12:00 PM EST
Stock indices are mixed midway through 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 which must be sold. This measure excludes newly built homes.
In October, pending home sales fell -4.6% from September, which was better than the expected drop of -5%. This comes on top of an 8.7% drop in the previous report. Of the ten reports issued in 2022, only one has seen an increase.
Additionally, the pending home sales index came in at 77.1, down from the reading of 125.2 at the same time last year. This equates to an approximate decline of 38.4% on an annual basis.
As a result, the overall sales trend is down as the cost of borrowing continues to rise and more homes come on the market. It has also forced homes to stay on the market longer as there are fewer buyers who now have more options to choose from.
The indices are mixed; JOLTS Report Exceeds Expectations
Last updated at 10:07 a.m. 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 were 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 United States.
Although below the peak of 11.855 million, job openings are still near their highs. In fact, today’s report is higher than last month’s. Nonetheless, job vacancies are down overall, and it will be interesting to see if this trend continues as rates continue to rise as growth slows.
Also, it is important to remember that this data is for October, which makes it a lagging indicator. Since then, many companies have announced that they will reduce their workforce in order to reduce costs.
Indeed, the most recent ADP non-farm payrolls report, which measures month-on-month private non-farm payrolls, came in at 127,000 for the month of November, well below the 200,000 expected.
It should be noted that these numbers have trended lower overall since the start of 2022. This indicates that hiring is slowing in the US economy as businesses continue to face macroeconomic uncertainties. Therefore, it is likely that this will result in lower job vacancies in the future.
The rising future ahead of Jerome Powell’s speech
First published at 7:00 a.m. EST
Stock futures rose early Wednesday ahead of a speech by Federal Reserve Chairman Jerome Powell.
Futures contracts on the Dow Jones Industrial Average (DJIA) lost 0.06%, while those of the S&P 500 (SPX) was down 0.20%, as of 7:00 a.m. EST Wednesday. Meanwhile, the Nasdaq 100 (NDX) futures were down 0.37%.
Powell is expected to speak at the Brookings Institution later on Wednesday and will likely address the central bank’s fiscal and monetary policy directions. Experts predict a half-point hike in interest rates in the next rate hike cycle, following four consecutive 75 basis point hikes. As the bank’s chief, Powell’s speech will be a strong indicator of the tone of the upcoming FOMC meeting. The possibility of a break or a pivot is very less, but any comments indicating these may induce a rally in the markets.
The indices ended Tuesday on a mixed note. The S&P 500 and Nasdaq 100 were down 0.16% and 0.73% respectively at the end of the regular trading session. In contrast, the Dow just managed to touch the green line.
In recent days, stocks have been under pressure due to China’s staunchly zero COVID policy and Chinese protests against it. Nevertheless, the increase in the number of vaccinations for the elderly and a drop in the number of new cases.
On the economic front, the ADP private payroll report is due out on Wednesday. Importantly, ADP is responsible for about one-fifth of the US private sector payroll.
Additionally, 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 comfortable with the economic environment and have not yet radically changed their household spending. This can, however, be a double-edged sword. If satisfied consumers indicate a strong economy, this behavior may also prompt the Fed to remain aggressive in order to weaken the retail sector and stabilize prices.
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