Wall Street Trades Lower as Investors Take Flight Ahead of FOMC Meeting

The S&P 500 (SPX) and the Nasdaq 100 (NDX) slipped lower on Wednesday, as US bond yields rallied ahead of the FOMC policy statement slated for later today, where traders will be watching if the central bank raises interest rates sooner than expected.

The benchmark 10-year yield recorded a new 13-month high around 1.67%, which eroded demand for some high-growth tech stocks, thereby causing the NDX to drop by more than 1%.

Worries that the passage of the massive $1.9 trillion stimulus package could trigger overheating in the US economy sparked a rally in long-duration Treasury yields, pulling down Wall Street’s top indexes from their recent peaks.

Meanwhile, economists expect the Fed to issue a blowout GDP forecast for 2021 at the end of its two-day meeting on Wednesday. Fed Chair Jerome Powell will host a press conference immediately after the meeting, where he will likely reassure that the economy can take off without creating excessive inflation.

Rate Hikes Could Come Sooner: Economists
While the Fed has reassured that it will maintain its dovish stance until the labor market has fully recovered, speculators expect some policymakers to hint at rate hikes in 2023. That said, some economists are expecting rate hikes to come earlier than that, with Morgan Stanley predicting an adjustment of monetary policy in early next year.

Arthur Weise, Chief Investment Officer at Kingsland Growth Advisors, noted that:

“I do not think investors believe that the Fed is going to change its stance, but there are fears for inflation to jump in the near term. The market is of the view that the 10-year yield could be higher, and if the Fed signals anything that matches that view, we could jump past the 2% mark.”

The SPX and the Dow Jones (DJIA) kicked off the week at new all-time highs, while the Nasdaq 100 had almost fully recovered from last week’s correction. At press time, the S&P 500 is trading at -0.51%, the Nasdaq 100 is also down by -1.26%, while the Dow is up by +0.05%.

 

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