Wall Street was mixed and the dollar rallied Wednesday as Federal Reserve Chairman Jerome Powell suggested two more rate hikes are likely ahead.
The Nasdaq moved ahead, driven by megacap momentum stocks, while the S&P 500 was nominally lower and health care stocks pulled the Dow into negative territory.
“There’s a lot of back and forth with the Fed and what they’re ultimately going to do,” said Megan Horneman, chief investment officer at Verdence Capital Advisors in Hunt Valley, Maryland.
In the wake of the recent stock rally, Horneman added that “stocks don’t believe the Fed, and you can see that in these high P/E stocks that continue to rise.”
“I am concerned that this rally has run ahead of itself and that these valuations are not sustainable,” she said.
Powell, who sat on a policy panel with European Central Bank President Christine Lagarde, Bank of England Governor Andrew Bailey and others, suggested that two more increases in the Fed’s target rate are likely, and he did not see inflation ease to reach the 2% target through 2025.
“You have to take these people at their word, and they are concerned about a return to core inflation targets,” said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia.
According to CME’s FedWatch tool, financial markets are pricing in an 82% probability that the central bank will raise the Fed Funds target rate by 25 basis points by the end of its July policy meeting.
A report that US officials are considering new restrictions on AI chips for China weighed on the semiconductor sector.
“Anyone who has participated in this momentum-driven rally is at risk from headline news and deeper downturns,” Horneman said. “Many of these momentum stocks, including semis, are at the highest risk.”
The Dow Jones Industrial Average fell 99.32 points, or 0.29%, to 33,827.42, the S&P 500 lost 3.19 points, or 0.07%, to 4,375.22, and the Nasdaq Composite added 36.93 points , or 0.27%, increased to 13,592.61.
European stocks closed higher as strong US economic data released on Tuesday allayed fears of a sharp economic downturn, even as Lagarde warned the ECB still doesn’t see enough evidence of a cooling in inflation.
The pan-European STOXX 600 index was up 0.70% and MSCI’s measure of equities around the world was up 0.12%.
Emerging market equities lost 0.20%. MSCI’s broadest index of Asia-Pacific stocks outside of Japan closed 0.09% lower, while Japan’s Nikkei rose 2.02%.
The greenback bounced back from the previous session’s weakness and gained momentum as Powell said more rate hikes this year are “probably appropriate.”
The dollar index rose 0.4%, while the euro fell 0.36% to $1.0919.
The Japanese yen weakened 0.17% against the greenback at $144.32 per dollar, while the pound last traded at $1.2648, down 0.77% on the day.
Treasury yields softened as investors looked to Friday’s PCE price index for further signs of declining inflation.
Benchmark 10-year bonds last rose in price 14/32 to yield 3.7136%, from 3.768% late Tuesday.
The 30-year bond last rose in price 19/32 to yield 3.807%, from 3.84% late Tuesday.
Crude oil prices rose sharply as a larger-than-expected fall in US crude inventories offset fears of rate hikes and weakening demand.
US crude rose 2.75% to $69.56 a barrel, while Brent reached $74.03, up 2.45% on the day.
Gold prices hit a 3-1/2 month low as investors bet on the Fed’s higher-for-longer rate policy.
Spot gold fell 0.1% to $1,912.09 an ounce.
(This story has not been edited by News18 staff and was published from a syndicated news agency feed – Reuters)