Day: May 2, 2023

(C) Reuters.

Investing.com — The S&P 500 slumped Tuesday as a sea of red engulfed banking stocks amid fresh worries about the health of regional banks just as the Federal Reserve gets its two-day meeting underway.

The S&P 500 fell 1%, the Dow Jones Industrial Average fell 1%, or 353 points lower, and the Nasdaq slipped 0.9%.

Regional banks including PacWest Bancorp (NASDAQ:PACW) and Western Alliance Bancorporation (NYSE:WAL) tumbled sharply as worries about further stress in smaller lenders persist amid concerns that the backdrop of higher for longer interest rates will hurt banks exposed to long-duration assets including Treasuries and commercial loans.

While rising interest rates have strained many small and regional banks, Wells Fargo says it doesn’t anticipate a banking crisis as “the vulnerability to rising interest varies greatly across the banking industry.”

Energy was also a big drag on the broader market following a slump in oil as fears about the economy were exacerbated by fresh concerns the U.S. could default as early as June 1 if Congress doesn’t lift the debt ceiling.

Treasury Secretary Janet Yellen on Monday warned that the United States could run out of cash and default on its debt repayments as early as June 1.

“The president and top Democrats want a “clean” debt ceiling increase, while Republican leaders are demanding any increase be tied to a reduction in spending,” Stifel said in a note.

Halliburton Company (NYSE:HAL), APA Corporation (NASDAQ:APA) and Schlumberger NV (NYSE:SLB) were among the biggest decliners.

Consumer discretionary stocks were relative outperformers, underpinned by a more than 1% rise in Amazon (NASDAQ:AMZN) and a jump in Marriott International Inc (NASDAQ:MAR) after the latter’s quarterly results topped Wall Street estimates.

Uber (NYSE:UBER) jumped 11% after reporting a smaller-than-expected loss in the first quarter and delivering an upbeat outlook, with chief executive Dara Khosrowshahi saying it is “poised to expand profitability” in the second quarter.

Chegg (NYSE:CHGG) fell 50% after reporting better-than-expected quarterly results and warning that AI language program ChatGPT is threatening the health of its homework help business.

Cummins Inc (NYSE:CMI), meanwhile, fell 3% despite lifting its annual revenue outlook and reporting quarterly results that beat on both the top and bottom lines.

The sea of red on Wall Street comes just as the Federal Reserve gets its two-day meeting underway. The Fed is expected to hike rates by 0.25% on Wednesday, but its signaling on a potential pause will dominate investor attention.

In economic news, labor market demand cooled as job openings fell to a two-year low in March, easing worries about wage-led inflation.

(C) Reuters. FILE PHOTO: A passerby walks past an electric monitor displaying various countries’ stock price index outside a bank in Tokyo, Japan, March 22, 2023. REUTERS/Issei Kato/File Photo

By Sin?ad Carew

NEW YORK (Reuters) – Wall Street stock indexes closed lower on Tuesday, a day ahead of the Federal Reserve’s interest rate decision, while U.S. Treasury yields fell as investors worried the government could run out of cash after June 1 without a debt ceiling hike.

Bank stocks underperformed sharply after the weekend failure of U.S. regional bank First Republic Bank (NYSE:FRC).

Energy shares tumbled as oil prices fell 5% to a five-week low on concerns about the economy as U.S. politicians argued about how to avoid a debt default and investors prepare for another interest rate hike this week.

The dollar index dipped after disappointing U.S. data a day before that the Fed is expected to hike rates by an additional 25 basis points and give guidance on whether it plans to raise rates further in June.

Top U.S. Senate Republicans on Tuesday called on President Joe Biden to accept their party’s debt-ceiling package or make a counter-offer, while a top Democrat said the Senate might try to advance a “clean” debt-ceiling hike next week. Late on Monday, the Treasury Department had said the U.S. could run out of the cash needed to pay its bills in the next month.

Meanwhile regional U.S. banks posted massive declines, dragging the S&P 500 bank index down 3.2% after the failure over the weekend of First Republic and the agreed sale of its assets to JPMorgan Chase (NYSE:JPM).

Trading on Tuesday reflected growing investor worries that more banks would start to show steep deposit outflows like First Republic, the third major U.S. bank to collapse since March, said Michael James, managing director of equity trading at Wedbush Securities in Los Angeles.

“Couple that with the Fed’s rate decision tomorrow and you’ve elevated levels of anxiety in financials spilling over the market in general … the debt ceiling limit is part of an elevated anxiety,” James said.

The Dow Jones Industrial Average fell 367.17 points, or 1.08%, to 33,684.53, the S&P 500 lost 48.29 points, or 1.16%, to 4,119.58 and the Nasdaq Composite dropped 132.09 points, or 1.08%, to 12,080.51.

MSCI’s gauge of stocks across the globe shed 0.96%. Emerging market stocks lost 0.26%.

Michael O’Rourke, chief market strategist at JonesTrading in Stamford, Connecticut, said “investors are recognizing that there’s challenges in the near term,” citing headwinds including the Fed meeting, the looming debt ceiling and bank concerns as well as weak economic data.

Data showed U.S. job openings fell for a third straight month in March even as they remained at levels consistent with a tight labor market.

(Graphic: Debt ceiling crisis and U.S. stocks – https://www.reuters.com/graphics/USA-STOCKS/byprleoqdpe/chart_eikon.jpg)

In currencies, the dollar index, which measures the greenback against a basket of major currencies, fell 0.245%, with the euro up 0.25% to $1.1002.

The Japanese yen strengthened 0.73% versus the greenback at 136.50 per dollar, while sterling was last trading at $1.2471, down 0.20% on the day.

U.S. Treasury investors strengthened bets that the Federal Reserve will reverse its interest rate-hiking course sooner than expected, amid a wide sell-off in regional bank stocks and signs that government funds will run short by June.

The benchmark 10-year Treasury note yields were down 14.4 basis points to 3.430%, from 3.574% late on Monday. And the 30-year bond was last down 10.7 basis points to yield 3.7101% while the 2-year note was last was down 15.3 basis points to yield 3.986%, from 4.139%.

U.S. crude oil futures settled down $4 or 5.29% at $71.66 per barrel and Brent finished at $75.32, down $3.99 or 5.03% on the day.

Gold extended gains, on track for its biggest daily gain in a month, as yields dropped on renewed fears of contagion in the U.S. banking sector and ahead of the Fed’s rate decision.

Spot gold added 1.8% to $2,016.79 an ounce. U.S. gold futures gained 1.64% to $2,015.90 an ounce.

(C) Reuters.

Investing.com — The Federal Reserve is widely expected to deliver a quarter-point interest rate hike when it concludes its two-day meeting on Wednesday, with some investors expecting central bank officials to signal a pause as it assesses its year-long tightening campaign.

Investors are focusing on whether the U.S. central bank indicates that it expects to pause rate increases after May, or if it keeps alive the possibility of an additional hike in June or later this year.

“Market pricing is now in line with our U.S. team’s view that the Fed will hike 25 basis points with no more hikes after that,” Morgan Stanley said in a note ahead of the meeting.

A 25 basis point hike would take the central bank’s benchmark rate to a 5% to 5.25% range. That range would not only mark the highest level of rates seen since 2007, but also meet the peak level of rates that was forecast in the Fed’s Summary of Economic Projections released in March.

Yet, bringing down the curtain on the fastest pace of rate hikes seen in four decades will be tricky for the Fed.

Inflation remains above the Fed’s 2% target, suggesting more work needs to be done to slow the economy. But the banking turmoil, which took a new twist after the failure of First Republic (NYSE:FRC), has the potential to aid the Fed in its fight to conquer inflation should a decline in lending activity, which would rein in economic growth, pick up pace.

“The Fed’s tightening is raising the cost of money … a higher cost of money, and a less accommodative banking system, these two things combined, can slow things down,” Sean O’Hara, president of Pacer ETFs said.

“The Fed could essentially pause after this last rate hike [in May] and let the tightness in the lending market do the rest of the work for them,” O’Hara added.

Tighter credit conditions are likely to slow growth in 2023 by about 0.4% Goldman Sachs says, equivalent to the usual impact of 40bps of rate hikes. Against this backdrop, the Fed is likely to emphasize the need for a higher-for-longer rate regime and stress that incoming data will reign supreme on future monetary policy decisions.

“The Fed is pausing when underlying inflation remains elevated, and for that reason it is likely to hold rates high for an extended period,” Morgan Stanley said, forecasting a pause until the “first 25bp cut in 1Q24.”

Fed Chairman Jerome Powell, who pushed back against rate-cut expectations at the press conference in March, could do so again, but this time with more vigor.

“[I]n the press conference we expect Chair Powell to sound data dependent, but we expect him to say that implies the next policy move is more likely a hike than a cut,” UBS said in a note.

(C) Reuters.

Investing.com — The Dow slumped Tuesday as a sea of red engulfed banking stocks amid fresh worries about the health of regional banks just a day ahead of the Federal Reserve decision.

The Dow Jones Industrial Average fell 1%, or 367 points lower, the Nasdaq slipped 1.1%, and the S&P 500 fell 1.2%,

Regional banks including PacWest Bancorp (NASDAQ:PACW) and Western Alliance Bancorporation (NYSE:WAL) tumbled sharply as worries about further stress in smaller lenders persist amid concerns that the backdrop of higher for longer interest rates will hurt banks exposed to long-duration assets including Treasuries and commercial loans.

While rising interest rates have strained many small and regional banks, Wells Fargo says it doesn’t anticipate a banking crisis as “the vulnerability to rising interest varies greatly across the banking industry.”

Energy was also a big drag on the broader market following a slump in oil as fears about the economy were exacerbated by fresh concerns the U.S. could default as early as June 1 if Congress doesn’t lift the debt ceiling.

Treasury Secretary Janet Yellen on Monday warned that the United States could run out of cash and default on its debt repayments as early as June 1.

“The president and top Democrats want a “clean” debt ceiling increase, while Republican leaders are demanding any increase be tied to a reduction in spending,” Stifel said in a note.

Halliburton Company (NYSE:HAL), APA Corporation (NASDAQ:APA) and Schlumberger NV (NYSE:SLB) were among the biggest decliners.

Consumer discretionary stocks were relative outperformers, underpinned by a more than 1% rise in Amazon (NASDAQ:AMZN) and a jump in Marriott International Inc (NASDAQ:MAR) after the latter’s quarterly results topped Wall Street estimates.

Uber (NYSE:UBER) jumped 11% after reporting a smaller-than-expected loss in the first quarter and delivering an upbeat outlook, with chief executive Dara Khosrowshahi saying the ride-hailing company is “poised to expand profitability” in the second quarter.

Chegg (NYSE:CHGG) fell 48% after reporting better-than-expected quarterly results and warning that AI language program ChatGPT is threatening its growth.

Cummins Inc (NYSE:CMI), meanwhile, fell 3% despite lifting its annual revenue outlook and reporting quarterly results that beat on both the top and bottom lines.

The sea of red on Wall Street comes just as the Federal Reserve gets its two-day meeting underway. The Fed is expected to hike rates by 0.25% on Wednesday, but its signaling on a potential pause will dominate investor attention.

In economic news, labor market demand cooled as job openings fell to a two-year low in March, easing worries about wage-led inflation.

(C) Reuters.

Investing.com — U.S. stocks were sinking as investors await the outcome of the Federal Reserve’s two-day meeting, which starts today.

At 11:24 ET (15:24 GMT), the Dow Jones Industrial Average was down 555 points or 1.6%, while the S&P 500 was down 1.7% and the NASDAQ Composite was down 1.5%.

The Fed will announce a decision on interest rates Wednesday afternoon, and then Chair Jerome Powell will take reporters’ questions at a press conference. Investors will be listening for any hints as to the Fed’s thinking heading into the next meeting in June.

Futures traders expect a quarter of a percentage point rate increase tomorrow but a pause in June as the Fed assesses how its actions to date have worked to cool inflation.

Another issue facing the market in the next couple of weeks is the nation’s debt ceiling. Treasury Secretary Janet Yellen said on Monday that based on tax receipts so far, the date when the government risks default is June 1.

The government hit the $31.4 trillion debt limit in January and has been maneuvering around it since then to keep payments flowing, but it would run out of opportunities to do that on that new date unless Congress raises or suspends the limit.

President Joe Biden invited leaders in the Senate and the House to a meeting on May 9 at the White House.

Job openings for March were lower than expected, at 9.59 million, down from the prior month. Factory orders were also weaker than expected, rising 0.9% versus the 1.1% gain forecasted.

Pfizer Inc’s (NYSE:PFE) first-quarter profit beat expectations on solid demand for recently acquired products and pneumococcal vaccines. Shares fell 0.9%.

Uber Technologies Inc (NYSE:UBER) shares rose 8% after forecasting higher than estimated core earnings.

Shares of educational services firm Chegg Inc (NYSE:CHGG) plunged 49.3% on fears that artificial intelligence chatbots could cut into its business.