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U.S. stocks on Wednesday traded near the flatline, as investors refrained from big moves ahead of the Federal Reserve’s monetary policy decision in the afternoon.
Market participants received further economic data that showed a cooling in producer inflation. Treasury yields slid after the figures and amid expectations for a pause in rate hikes.
Ahead of the Fed’s announcement at 1400 ET, the tech-heavy Nasdaq Composite (COMP.IND) had added 0.14% to 13,592.47 points, while the benchmark S&P 500 (SP500) had risen 0.13% to 4,374.62 points. The Dow (DJI) was under pressure, falling 0.45% to 34,058.88 points. The blue-chip index was weighed down by a slump in shares of UnitedHealth (UNH).
Of the 11 S&P sectors, six were trading in the green, led by Technology and Consumer Staples. Health Care and Energy topped the losers.
Wall Street’s major averages have posted gains in the last two sessions in the runup to the Fed’s meeting, with the benchmark S&P (SP500) hitting fresh 52-week closing highs. Sentiment yesterday was helped by a moderation in consumer inflation in May.
“Investor risk appetite has remained pretty strong over the last 24 hours, with the S&P 500 (SP500) hitting a fresh one-year high and posting a 4th consecutive advance,” Deutsche Bank’s Jim Reid said. “This optimism was evident across multiple asset classes, with oil prices rising and credit spreads tightening as well. But the flip side of all this positivity has been growing skepticism that central banks will cut rates at all this year, which led to a sovereign bond selloff as investors priced in higher rates for longer.”
On Wednesday, the producer price index (PPI) report for May came in, with the headline number falling more than expected on a M/M basis and trailing the consensus on a Y/Y basis.
“The core (PPI) rate dipped to 2.8% in May from 3.2% in April and 8.6% in May last year, so the downward trend in the headline is not just a story of falling food and energy prices,” Pantheon Macro’s Ian Shepherdson said.
“The pace of margin compression is uneven and the past couple months have been disappointing, but the big picture is intact: Slowing demand growth for goods, coupled with the dramatic turnaround in supply chains, means that gross margins cannot be sustained at their pandemic-boosted level. Margin re-compression over the next year will exert intense downward pressure on core PCE inflation and the GDP deflator, as well as the PPI,” Shepherdson added.
After the central bank’s policy decision, chair Jerome Powell will speak at 1430 ET. The expectation is for the Fed to keep rates steady but signal a hike at the July meeting.
Treasury yields fell after the inflation data and amid the anticipation of no rate hike. The longer-end 10-year yield (US10Y) was down 6 basis points to 3.78% while the 2-year yield (US2Y) – which is more rate-sensitive to the Fed’s moves – was down 7 basis points to 4.63%. Meanwhile, the dollar index (DXY) was lower by 0.59% to 102.73.
Turning to active stocks, UnitedHealth (UNH) stock slipped more than 7% and weighed on other managed care providers after the company warned that its medical care ratio – a key metric for health insurers – would come under pressure in Q2.
