9.35am: Caution prevails ahead of Fed’s first rate hike of 2023
US stocks edged higher at the open ahead amid a flurry of earnings released this morning from major corporations including Pfizer Inc, McDonald’s Corporation, General Motors Company, and Exxon Mobil Corporation.
Just after the market opened, the Dow Jones Industrial Average had added 19 points or 0.1% at 33,736 points, the S&P 500 was up 10 points or 0.3% at 4,028 points, and the Nasdaq Composite had gained 42 points or 0.4% at 11,443 points.
Spotify Technology SA shares jumped 10.3% after the music streaming provider posted a jump in subscribers but a surge in losses.
GM added 6.2% after the carmaker’s fourth quarter sales and profits topped expectations.
On the flip side, Exxon fell 2.7%, Caterpillar Inc shed 4%, and McDonald’s slipped 1.6% as their respective earnings failed to meet investors’ expectations.
Swissquote Bank senior analyst Ipek Ozkardeskaya noted that stock investors had kicked off the week on a cautious note as the Federal Reserve is expected to kill joy when it announces its latest interest rate hike decision tomorrow, and earnings may not save the day.
“US equities kicked off the week on a negative note, as many investors preferred booking profits before the deluge of earnings announcements and the Fed decision,” Ozkardeskaya said.
“And they are certainly not wrong to be scared, because the Fed expectations became increasingly dovish in January, as investors saw the easing inflation figures combined with softening economic activity.”
6.30am: Markets betting on 25 bps rate hike
Wall Street is expected to end the month on the back foot as investors take some profits following January’s strong run and await the outcome of the US Federal Reserve’s first interest rate decision of 2023, due on Wednesday.
Futures for the Dow Jones Industrial Average (DJIA) fell 0.4% in Tuesday pre-market trading, while those for the broader S&P 500 index dropped 0.5%, and contracts for the Nasdaq-100 shed 0.6%.
The major US indexes all finished in the red on Monday, with corporate earnings reports also weighing on the market as well as the rate hike worries. At the close, the DJIA was down 0.8% at 33,717, the S&P 500 dropped 1.3% to 4,018 and the Nasdaq Composite lost 2% to 11,394, which was its biggest daily fall so far for 2023.
Investors are starting to “show some fear” as the Federal Open Market Committee (FOMC) starts its two-day rate-setting meeting today, commented Neil Wilson, chief market analyst at Markets.com.
“There is genuine doubt among bulls here – they know the Fed can drive a horse and coaches through their recovery by pushing back strongly against the loosening in financial conditions we have seen in recent weeks,” he added. “Stocks have had a good run higher this year so some profit-taking ahead of the uncertainty of the Fed makes sense too.”
Wilson noted that the market is currently pricing in a 98.6% chance the FOMC votes to raise rates by 25 basis points, and a roughly 85% chance for one last hike in March. This setup creates ample opportunity for a hawkish surprise from the Fed – including how high rates will peak and how long they will stay there, he said.
Companies reporting quarterly earnings today include ExxonMobil, Samsung, Pfizer, McDonald’s and Caterpillar, among others.