NEW YORK: Wall Street stocks finished in positive territory yesterday, staging a huge comeback ahead of a closely-watched Federal Reserve (Fed) decision expected to signal imminent interest rate increases.
Stocks were in the red most of the day, hitting their lowest point around midday and extending January's market weakness as investors readjust their holdings following Fed statements signaling a sharp pivot on monetary policy.
But prices turned around later in the afternoon.
The Dow Jones Industrial Average finished up 0.3% at 34,364.50, a gain of more 1,200 points from its lowest point in the day.
The broad-based S&P 500 also sore 0.3% to close at 4,410.13, while the tech-rich Nasdaq Composite Index advanced 0.6% to 13,855.13.
“There were signs of selling exhaustion,” said Karl Haeling at LBBW, adding that it is too soon to know if markets have bottomed out.
“If the Fed comes out and sends a more hawkish message on Wednesday that could send things right back down,” he said.
“On the other hand, there have been some extreme bearish forecasts on the Fed, so it’s also possible that the Fed comes out hawkish but a little less than some of their statements lately, and the market could have a big bounce.”
The session also was beset by worries over a possible Russian invasion of Ukraine, after the United States, Britain and Australia ordered diplomats’ families to leave the capital Kyiv amid soaring tensions over Moscow's deployment of some 100,000 troops to its neighbour's borders.
Some analysts have questioned the sell-off over the last few days.
JPMorgan Chase analysts called the downturn “overdone”, saying the trend is “out of line with activity momentum, easing bottlenecks, and what we expect to be a strong earnings season”.
“I would not be surprised if today is the low point for the major averages,” said Sam Stovall, chief investment strategist of CFRA Research here.
Still, Stovall added that January is often a barometer for the rest of the year.
“As goes January, so goes the year,” Stovall added. “A negative January in 2022 along with a negative first five days of the year would not bode well for the entire year’s performance.”
The Fed is due to convene its two-day monetary policy meeting today, and market participants will be parsing its concluding statement and chairman Jerome Powell's subsequent Q&A session for clues as to the central bank's timeline for increasing key interest rates to combat inflation.
“I think investors are over-assuming a very hawkish stance by the Fed,” Stovall said. “Granted, inflation is high and is likely to get higher before it starts to decline. Specifically we see the headline CPI topping at 7.3% for both January and February, but then coming down to 3.5% by year-end.”
Meanwhile a report from IHS Markit gave evidence that surging infections of the Omicron Covid variant have caused a marked deceleration of business activity in the United States.
Fourth-quarter reporting season is in full swing, with 65 of the companies in the S&P 500 having posted results. Of those, 77% have come in above expectations, according to data from Refinitiv.
On aggregate, analysts now see S&P 500 annual EPS growth of 23.7%, per Refinitiv.
A series of disappointing earnings from big banks and, notably, lockdown darling Netflix Inc have overshadowed many better-than-expected results. – AFP, Reuters