S&P 500, NASDAQ Composite Posting Small Gains Ahead of Fed Chair Powell’s Speech
The U.S. stock market is expected to open mixed on Wednesday with the Dow and S&P 500 Index showing losses, while the NASDAQ is bucking the early trend with a slight gain.
The volatile pre-market trade is being fueled by conflicting economic reports. Low volume is also behind the choppy trade with many of the major players trading lightly ahead of a key speech by Federal Reserve Chairman Jerome at 18:30 GMT.
At 14:16 GMT, the blue chip Dow Jones Industrial Average is trading 33855.00, down 2.00 or -0.01%. The benchmark S&P 500 Index is at 3963.75, up 1.75 or +0.04% and the tech-heavy NASDAQ is trading 11541.25, up 16.50 or 0.14%.
Mixed Economic Data Driving Volatile Trade
The major indexes erased earlier gains after economic reports on labor and growth delivered conflicting signals about the strength of the economy.
A report from ADP on the state of the labor market signaled that private sector hiring was cooling, raising hopes the Federal Reserve would slow it aggressive rate-hiking campaign. This news helped underpin prices following its release at 13:15 GMT.
The early session strength didn’t last very long because 15 minutes later at 13:30 GMT, an estimate of U.S. GDP came in stronger than expected, suggesting the Fed still has wiggle room for another aggressive rate hike. Stocks turned lower on the news.
Specifically, the ADP Non-Farm Employment Change report showed that private companies added just 127,000 positions for the month, well below the 190,000 consensus estimate from economists polled by Dow Jones.
The second estimate of third quarter GDP, released by the Bureau of Economic Analysis showed an increase of 2.9% annually. That was revised higher from the 2.6% first estimate.
Other reports on Wednesday showed an increase in the trade deficit to 99.0 billion. Preliminary Wholesale Inventories rose 0.8%, worse than the 0.5% estimate.
The Preliminary GDP Price Index rose 4.3%, higher than the 4.1% estimate and previous reading. This confirmed that inflation is still stubbornly high.
The next major report will be released at 15:00 GMT. The JOLTS Job Openings report is expected to dip from 10.72 million to 10.24 million. This news would be perceived as favorable for the stock market.
All Eyes on Fed Chair Powell
However, we’re not expecting much movement in prices ahead of Federal Reserve Chair Jerome Powell’s speech at 18:30 GMT.
Powell is expected to deliver remarks on the economy and the labor market. I expect him to highlight that inflation is still too high and the labor market too strong, and that more has to be done to bring both down. This would be perceived as hawkish and perhaps bearish for stocks into the close.
But the direction of the market will most likely be determined by the tone of Powell’s speech. Investors will be listening to hear if he reiterates the tone of previous speeches where he called for rates to go up until inflation returns to the 2% level and the unemployment rate moves closer to 5%.
Instead of telling investors that rates will be moving higher, Powell could mention conditions for a pivot from higher rates. This would be perceived as bullish for stocks.
Essentially, Powell is likely to remain hawkish, but to which degree according to trader perceptions, will drive stock indexes sharply higher or sharply lower into the close.
Furthermore, investors aren’t likely to start a new uptrend with the market facing fresh Non-Farm Payrolls data on Friday and consumer inflation data next week.