Nasdaq, S&P, Dow tick lower; Powell says Fed to continue data-dependent approach to hikes

U.S. stocks on Wednesday edged lower after seesawing in volatile trade, as market participants focused on Federal Reserve chair Jerome Powell’s comments following a widely expected 25 basis point hike in interest rates by the central bank.

Powell continued to stress that policymakers would take a data-dependent approach going forward and that bringing down inflation remained its main goal. He said “it would not be appropriate” to cut rates at a time when inflation was still not expected to come down quickly.

The Fed chief also commented on the recent banking crisis and said that banking conditions have “broadly improved” since March.

Into the final hour of trading, the tech-heavy Nasdaq Composite (COMP.IND) was down 0.34% to 12,039.79 points. The benchmark S&P 500 (SP500) was lower by 0.63% to 4,093.77 points, while the blue-chip Dow (DJI) slipped 0.76% to 33,427.44 points.

Treasury yields remained largely unchanged. The 10-year yield (US10Y) was now down 5 basis points to 3.39% and the more rate-sensitive 2-year yield (US2Y) was down 8 basis points to 3.90%. Shorter-end maturities continued to see selling amid the debt-ceiling debate, with the 1-month yield (US1M) up 7 basis points to 4.44%.

The Fed’s monetary policy committee earlier boosted the federal funds rate target range by 25 basis points, bringing it to 5.00%-5.25%.

Powell in his post-decision press conference acknowledged the recent economic data showing cooling in the economy, and said that monetary policy was not “far off” from a restrictive level. He also forecast mild to no recession for the U.S. economy. On the banking crisis, Powell said the financial system was “sound and resilient” while also vowing to strengthen it.

“The Fed has now hiked by 500bp from the low,” Pantheon Macro’s Ian Shepherdson said. “In the past, cumulative hikes of more than 300bp or so have been enough to push the economy into recession, even without the assistance of a banking crisis. No previous Fed since at least 1960 has continued hiking after the peak in core inflation; in the past seven cycles they have eased before the peak, in the knowledge that it was coming.”

“This Fed is in uncharted waters, with all the risks that entails. We think they have done more than enough, and that the economy likely is now shrinking.”

According to the CME FedWatch tool, markets now see a ~81% chance of the Fed holding rates at the current level at its June meeting, while the probability of a rate cut at the July meeting is now at nearly 32%.

Looking at the performance of the 11 S&P sectors on Wednesday, nine were trading in the red. Energy topped the losers for a second straight day, as crude oil futures extended their decline to below $70. The sector had suffered solid losses in the previous session amid disappointing economic data out of China and jitters around the regional banking space at home.

Turning to the economic calendar, ADP’s measure of private payrolls in April showed a 296K increase versus a predicted rise of 148K jobs.

Additionally, ISM services PMI for April rose slightly above expectations while S&P’s gauge of U.S. composite PMI for April came largely in-line.

Earnings news continued to remain in the spotlight. Advanced Micro Devices (AMD) slumped more than 7% and was among the top percentage losers on the Nasdaq Composite (COMP.IND) as Wall Street reacted negatively to the semiconductor company’s guidance.

Starbucks (SBUX) was also among the top Nasdaq percentage losers after some investors were disappointed with the coffee giant’s outlook.

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