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U.S. Stocks Climb Off Worst Levels But Remain In The Red After Fed Minutes

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May 22 2024 4:48PM

Stocks showed a lack of direction throughout much of the trading session on Wednesday before coming under pressure following the release of the minutes of the Federal Reserve’s latest monetary policy meeting.

The major averages climbed off their worst levels going into the close but ended the day in the red after ending Tuesday’s choppy trading session modestly higher.

The Dow slid 201.95 points or 0.5 percent to 39,671.04, the S&P 500 fell 14.40 points or 0.3 percent to 5,307.01 and the Nasdaq dipped 31.08 points or 0.2 percent at 16,801.54.

The weakness that emerged on Wall Street came as the Fed minutes suggested officials expect to maintain interest rates at current levels longer than previously thought.

The minutes of the April 30-May 1 meeting said participants highlighted disappointing readings on inflation over the first quarter and indicators pointing to strong economic momentum.

The participants subsequently assessed that it would take longer than previously anticipated for them to gain “greater confidence” inflation is moving sustainably toward 2 percent.

With Fed officials repeatedly saying they need “greater confidence” inflation is slowing before they cut rates, the minutes said participants discussed maintaining the current restrictive policy stance for longer.

While officials also discussed reducing policy restraint in the event of an unexpected weakening in labor market conditions, various participants also mentioned a willingness to raise rates further should risks to inflation materialize in a way that such an action became appropriate.

“The investing world will have to wait at least another month to hear anything about rate cuts but the kicker in this report was the willingness of some participants to restrict policy further which apparently according to the markets action was quite the surprise,” said Alex McGrath, Chief Investment Officer for NorthEnd Private Wealth.

Selling pressure remained relatively subdued, however, as traders seemed reluctant to make significant moves ahead of the release of quarterly results from AI darling Nvidia (NASDAQ:NVDA).

Nvidia is scheduled to release its fiscal first quarter results after the close of today’s trading, with analysts expecting the company to report substantial earnings and revenue growth.

Sector News

Gold stocks moved sharply lower over the course of the session, resulting in a 3.7 percent nosedive by the NYSE Arca Gold Bugs Index. The sell-off by gold stocks came amid a steep drop by the price of the precious metal.

A sharp decline by the price of crude oil also contributed to significant weakness among oil service stocks, as reflected by the 3.4 percent plunge by the Philadelphia Oil Service Index.

Housing stocks also saw considerable weakness following the release of a report unexpectedly showing a continued decrease by existing home sales in August, with the Philadelphia Housing Sector Index tumbled by 2.4 percent.

Brokerage, oil producer and steel stocks also showed notable moves to the downside, while biotechnology and semiconductor stocks bucked the downtrend.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly lower during trading on Wednesday. Japan’s Nikkei 225 Index slid by 0.9 percent, while Hong Kong’s Hang Seng Index edged down by 0.1 percent.

The major European markets also moved to the downside on the day. While the German DAX Index dipped by 0.3 percent, the French CAC 40 Index and the U.K.’s FTSE 100 Index both fell by 0.6 percent.

In the bond market, treasuries moved modestly lower following the release of the Fed minutes. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, rose 2.0 basis points to 4.434 percent.

Looking Ahead

Trading on Thursday is likely to be driven by reaction to Nvidia’s quarterly results, although reports on weekly jobless claims and new home sales may also attract attention.