Dow, S&P 500 under pressure but Nasdaq near record as stock-market investors gear up for Fed update

The Dow and S&P 500 lost ground Monday, while tech stocks edged the Nasdaq Composite toward an all-time high, as investors prepared for an important meeting of the Federal Reserve this week.

The rate-setting gathering could help investors assess how the central bank views evidence of surging inflation against data showing slack in the job market during the COVID pandemic recovery.

The Fed’s two-day meeting commences Tuesday.

How is the stock market trading?
  • The Dow Jones Industrial Average

    was trading 263 points, or 0.8%, lower at about 34,215.
  • The S&P 500 index

    declined 12 points, or 0.3%, to around 4,234.
  • The Nasdaq Composite Index

    rose 52 points to reach roughly 14,122, for a gain of 0.4%, closing in on the April 26 record closing high at 14,138.78.

On Friday, the Dow retreated 0.8% for the week, snapping a 2-week win streak, but was off 0.86% from its May 7 record closing high at 34,777.76. The S&P 500 advanced 0.4% for the week to mark its 28th record close of 2021, the Nasdaq Composite Index ended the week with a 1.9% gain.

What’s driving the market?

What once proved illusory for the Fed years ago may now be transitory, and now it is time to put talking about inflation on the agenda.

By the middle of the week, investors finally may have a clearer sense of the U.S. central bank’s game plan for confronting inflation and normalizing policy, including whether Fed officials still deem pricing pressures temporary.

Read: Here’s what the market wants—and doesn’t want—to hear from Powell at this week’s Fed meeting

“It’s all about interest rates and any possible change in the language from the Federal Reserve,” said Kent Engelke, chief economic strategist, Capitol Securities Management, of the mixed day for stocks.

Engelke also said many still expect the Fed to keep rates near zero and maintain its current pace of bond buying for some time, which may be helping lift technology stocks Monday, up 0.4%, as a component of the S&P 500 index.

Key Words: Paul Tudor Jones sees ‘green light to bet heavily on every inflation trade’ if Fed ignores price pressures Wednesday

The U.S. central bank is buying $80 billion of Treasurys and $40 billion of mortgage-backed securities each month, while keeping benchmark interest rates between 0% and 0.25%.

Federal Reserve Chairman Jerome Powell and fellow policy makers are expected to discuss the eventual tapering of that $120 billion a month asset-purchase program, which could prove delicate as they hope to avoid roiling the market in the process. 

It is expected that the Fed’s projections of interest rates in the future, the so-called dot-plot, may show a shift forward for the first rate increase to come during 2023. At the moment, the Fed shows no rate increases until 2024 at the earliest. Back in March, the Fed penciled in a 2.2% core rate for the personal consumption expenditure index.

While that may rise, the Fed won’t move the core rate for 2022 much higher, a signal that it still believes the price gains seen in the past few months reflects “largely transitory” factors. 

“Though inflation concerns appear to have moderated, we expect volatility to spike around further data indicating accelerating wage growth and/or prices,” wrote Saira Malik, chief investment officer at Nuveen, in a note.

The Tell: Inflation scare? Check out this chart before freaking out

“Should price increases begin to spread beyond their current narrow scope, or if employers continue to hike pay to attract or retain workers, the Fed may feel the need to more openly discussing tapering,” she wrote.

In Europe, U.K. Prime Minister Boris Johnson was expected to delay the full lifting of COVID restrictions due to a surge in new cases caused by the Delta variant as positive tests climbed to their highest since February. Leaders of the Group of Seven also championed a 15% global minimum tax rate support and continued fiscal stimulus to help economies dig out of the COVID pandemic.

Which companies are in focus?
  • Shares of General Electric Co.

    and its partner Safran were in focus after the duo said they are working together to develop low carbon-emission engines designed for the fight against climate change, in an effort they called RISE.
  • Novavax Inc.’s

    experimental COVID-19 vaccine was 90.4% effective at preventing symptomatic disease in adults in a large clinical trial, the company said, results that move the shot a step closer to global use. Shares were up 0.3%.
  • Meme stocks AMC Entertainment Holdings Inc.

    and GameStop Corp.

    were trading mixed. Shares of movie chain AMC were up over 18% and those for bricks-and-mortar videogame retailer GameStop were down over 2%.
  • Senseonics Holdings Inc.
     the maker of insulin pumps, may be the latest stock to join the meme movement, after its profile rose considerably on social media over the weekend with individual investors. Shares were up 9%.
  • Shares of Lordstown Motors Corp.

    were down over 17%, near its largest daily percent decline ever, after the company said that it was replacing its chief executive and chief financial officers who resigned.
How are other assets faring?
  • The yield on the 10-year Treasury note TMUBMUSD10Y edged up to 1.5%. Yields and bond prices move in opposite directions.
  • The ICE U.S. Dollar Index DXY, a measure of the currency against a basket of six major rivals, declined 0.1%.
  • Oil futures traded at a more than 2-year high, with the U.S. benchmark CL00, up 22 cents, or 0.3%, at $71.13 a barrel. Gold futures GC00 were lower, falling 0.7%, to $1,865.90 an ounce.
  • European equities booked modest gains, with the pan-Continental Stoxx Europe 600 SXXP, closing up 0.2%. London’s FTSE 100 UKX also gained 0.2%.
  • In Asia, the Shanghai Composite SHCOMP and Hong Kong’s Hang Seng Index HSI were closed for a holiday; Japan’s Nikkei 225 NIK, rose 0.7%.

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