Dow in choppy trade ahead of Fed’s next rate hike

JPMorgan's Camporeale says our positioning is defensive because we don't know where the Fed is going

The Dow edged higher in volatile trading on Monday ahead of the Federal Reserve’s two-day policy meeting that begins on Tuesday, with the Fed widely expected to raise interest rates by 75 basis points.

The Dow Jones Industrial Average was last up 45 points, or 0.13%. On Monday, the 30-stock index oscillated between a low of 263 and a high of nearly 130. The S&P 500 and Nasdaq Composite edged higher.

Yields pushed higher, with the 10-year U.S. Treasury yield breaking above 3.51% to an 11-year high ahead of the Federal Reserve’s likely decision later this week to raise its benchmark interest rate by another 75 basis points to tame inflation.

After some brief summer hopes that the Federal Reserve could complete its aggressive tightening policy, investors are selling stocks again on fears that the central bank will go too far and tip the economy into recession.

Investors focused on the Federal Reserve’s policy meeting scheduled to begin on Tuesday, where the central bank is expected to raise interest rates by 75 basis points. Investors are also eyeing guidance on corporate earnings ahead of the next earnings season in October.

“It’s been a very quiet meeting so far,” Vital Knowledge’s Adam Crisafulli wrote in a note to clients. “Stocks have recovered from their earlier lows, but sentiment remains very bearish. The consensus strategy this week seems to be to expect a short-lived FOMC rally, with most planning to use it as an opportunity to profit for further declines Be prepared (many believe a return to the June lows is inevitable).”

Six of the S&P 500’s 11 major sectors were up or flat, led by gains in consumer discretionary, industrials and materials. Financial stocks were also higher as some investors bet that higher interest rates could benefit their profits. Healthcare was the laggard, down 1.5%.

Stocks fell last week as investors reacted to a higher-than-expected inflation report and a gloomy warning from FedEx that the global economy was “significantly deteriorating.” The major indexes fell for a fourth straight week in five and hovered near two-month lows.

Aside from the Fed meeting, there are only a few economic data releases this week, including August housing starts on Tuesday and initial jobless claims on Thursday.

–CNBC’s Patti Domm contributed reporting.

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