US Stocks Lower as Market Expects Possibly Biggest Fed Rate Hike Since 2000

How are shares traded?

• The Dow Jones Industrial Average DJIA,
  +0.04%
  fell 29 points, or 0.1%, to 33,096

• The S&P 500SPX,
  -0.18%
  lost 21 points, or 0.5%, to 4,154

• The Nasdaq Composite lost 180 points, or 1.4%, to 12,382.

On Tuesday, the Dow Industrials DJIA,
+0.04%
rose 67.29 points, or 0.2%, to close at 33,128.79, the S&P 500 SPX,
-0.18%
it gained 0.5% to finish at 4,175.48. The Nasdaq Composite COMP,
-0.95%
added 0.2% to finish at 12,563.76.

Read: “Bubble stocks have burst,” but it’s not safe to buy them yet, says Ray Dalio, founder of the world’s largest hedge fund.

What drives the markets?

Along with a half percentage point interest rate hike, the Federal Reserve is expected to announce the start of a “quantitative tightening” when the central bank’s decision is announced at 2 pm ET. Investors will also focus on a press conference with Fed Chairman Jerome Powell at 2:30 pm ET.

Read: The Fed is on track for the biggest rate hike since 2000

Clarity from the Fed on the size and scope of future rate hikes could give beleaguered stocks a lift, some analysts say.

“With financial conditions tightening ahead of the Fed’s interest rate decision, the Fed could be more dovish,” Saxo Bank’s strategy team said in a note to clients. “Since the last Fed meeting, the 10-year yield topped 3% for the first time since 2018, the US dollar rallied 5%, the S&P 500 fell 8.74%, and hedge fund exposures fell to a minimum of a year and a half.

Rob Haworth, senior investment strategist at US Bank Wealth Management, is also awaiting further direction from the Federal Reserve. “I think the market is priced in for the Fed to be quite aggressive. What that leaves us with is thinking that there is some upside risk here,” Haworth said in an interview.

“But a lot of that depends on what the Fed says and what Jerome Powell says about the future vision. Are they affirming what the market is saying and projecting, which goes a bit beyond today’s dot plots, or are they talking about a greater reliance on data and reacting more to data as it comes?

A slightly more dovish Fed could lead to a short-term rally in hard-hit tech and cyclical stocks, Saxo strategists said. “However, keep in mind that the long-term outlook remains very bearish, medium to long term, as the Federal Reserve is taking $1 trillion a year out of the system and the economy is expected to slow down,” they said.

The yield on the 10-year Treasury note TMUBMUSD10Y,
2.977%
down 1 basis point to 2.989%, while the 2-year TMUBMUSD02Y,
2,809%
it rose 7.4 basis points to 2.805%.

In US economic data, private payrolls increased by 247,000 in April, according to the ADP National Employment Report released on Wednesday. Economists surveyed by The Wall Street Journal had forecast a gain of 390,000 private-sector jobs.

“In April, the labor market recovery showed signs of slowing as the economy approaches full employment,” said Nela Richardson, chief economist at ADP.

Meanwhile, the US trade deficit jumped 22.3% to a record $109.8 billion in March, the US Census Bureau and US Bureau of Economic Analysis said on Wednesday. US imports rose 10.3% to $351.5 billion, while US exports rose 5.6% to $241.7 billion in March.

In addition, the Institute of Management and Supply Purchasing Managers’ Index for the services sector showed weaker new orders and employment growth, down 57.1% in April from 58.3%, below the forecast.

Oil was also in the spotlight, with prices for both Brent BRN00,
+3.26%

BRNN22,
+3.26%
and West Texas Intermediate CL00 crude,
+3.39%

CL.1,
+3.39%

CLM22,
+3.39%
nearly 4% each after the European Union proposed to ban imports of Russian oil under a six-month phased plan and refined products within a year.

The move would be part of a sixth batch of EU sanctions against Russia for its invasion of Ukraine that began in late February.

Investors will also see a fresh batch of corporate earnings on Wednesday, with results expected from eBay Inc. EBAY,
-0.79%
and Etsy Inc. ETSY,
-2.24%,
among others, after closing.

Which companies are in focus?

• Actions of modern inc.
  mRNA,
  -1.24%
  it fell 1%, even though the company beat Wall Street’s earnings and revenue expectations for the quarter.

• Lyft inc.
  LYFT,
  -32.18%
  Shares fell 33% in premarket trading after the ride-sharing group reported a better-than-expected first quarter, but earnings and sales forecasts were disappointing. Opponent’s Actions Uber Technologies Inc.
  Uber,
  -8.89%
  it fell about 11% as the company said it would release its own earnings announcement before the market open on Wednesday.

• Chinese ride sharing company didi global inc.
  I MADE,
  -3.48%‘s
  US Depository Receipts fell 5% in premarket trading, after the company said it was under investigation by the Securities and Exchange Commission regarding its 2021 IPO.

• Herbalife Nutrition Ltd.
  HLF,
  -8.78%
  slid 9% to a two-year low after the multi-level marketing company announced planned reductions due to new “distributors.”

• Airbnb Inc.
  ABNB,
  +1.59%
  shares rose 1.8% after the accommodation booking company reported results that beat forecasts and said it surpassed 100 million nights booked in a quarter for the first time.

• party group inc
  MTCH,
  -2.44%
  Shares fell 5% after the online dating company’s earnings outlook missed expectations.

• starbucks inc.
  SBUX,
  +5.99%
  Shares rose 5% after the coffee giant reported earnings online, amid rising costs and inflation and tighter margins. Chief Executive Howard Schultz said “record” demand was helping accelerate store growth plans.

• advanced microdevices inc.
  amd,
  +2.74%
  shares rose 1.4% in premarket trading after the semiconductor company reported more than $5 billion in quarterly revenue for the first time on Tuesday.

How did other assets fare?

• The ICE US Dollar Index DXY,
  -0.14%,
  a measure of the currency against a basket of six major rivals, fell 0.1%.

• GC00 Gold Futures,
  -0.24%
  slipped, with gold for delivery June GCM22,
  -0.24%
  it decreased 0.2% to $1,866 an ounce.

• bitcoinbtc usd,
  +3.62%
  up 1.4% to $38,789

• In European equities, the Stoxx Europe 600 SXXP,
  -1.08%
  fell 0.9%. FTSE 100 UKX London,
  -0.90%
  fell 0.6%.

• In Asia, the Hang Seng HSI Index,
  -1.10%
  fell 1.1% in Hong Kong, while many other Asian markets remained closed for holidays.