US stocks mostly rose on Wednesday morning ahead of the Federal Reserve’s decision on whether to hike interest rates for the first time in three years.
The Dow Jones Industrial Average (^DJI) dipped below the flat line, while the S&P 500 (^GSPC) rose 0.2%. The Nasdaq Composite (^IXIC) gained 0.4%
Crypto prices tumbled, meanwhile, after the Senate failed to pass a key procedural vote for a regulatory framework for digital assets, known as the Clarity Act. Bitcoin’s price (BTC-USD) dropped below $76,000.
At the same time, rising oil prices have contributed to worries that inflation will remain stubbornly high. Despite a pause in crude oil’s rally, benchmark Brent (BZ=F) and WTI (CL=F) futures remain above $100 per barrel.
That sets the stage for Wednesday’s crucial events: the Federal Reserve rate decision, the release of the Fed’s dot plot, and Fed Chairman Kevin Warsh’s press conference. Traders overwhelmingly expect the Fed to hike rates on Wednesday, with odds at 93%, according to CME Group.
Should Warsh and FOMC policymakers follow through with a hike, it could set the Fed up to clash with the White House, as President Trump has ratcheted up calls for lower interest rates.
In other economic data releases, August retail sales reaccelerated, rising 1.2% versus expectations of a 0.9% increase and July’s 0.5% decline, highlighting that consumers continue to spend despite inflation pains.
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US stock market moves into the green at the opening bell on Wednesday
The US stock market began a move into the green on Wednesday, with the Federal Reserve’s rate decision only hours away.
The Dow Jones Industrial Average (^DJI) held slightly below the flat line, while the S&P 500 (^GSPC) picked up a modest 0.2%. The Nasdaq Composite (^IXIC) rose by 0.4%
Ahead of the FOMC’s rate-setting decision at 2 p.m. ET, Treasury bond yields and oil prices are in focus for investors, as both have moved higher in recent days. Yields on the 10-year Treasury (^TNX) have reached levels not seen since 2007, while oil futures (BZ=F, CL=F) are back above $100.
Moving the other way on Wednesday morning were cryptocurrencies and crypto stocks, both selling off after a key Senate vote on the Clarity Act failed to reach the needed threshold to pass. Bitcoin (BTC-USD) dropped below $76,000.
Retail sales rise 1.2% in August, surpassing expectations
US retail sales rose by more than expected in August, according to fresh data from the Census Bureau.
Retail sales grew 1.2% last month to $773.9 billion, bouncing back from a revised decline of 0.5% in July. Economists surveyed by Bloomberg were expecting a 0.9% increase.
Retail sales excluding autos, auto parts, and gas also rose 1.2% month over month. Nearly all categories saw retail sales increase.
The data showed that consumers continued to spend even as they reported feeling worse about economic conditions. Last Friday, the University of Michigan’s preliminary reading of September consumer sentiment deteriorated for a second month in a row as inflation worries and persistently high gas prices remained top of mind.
A recent report from PwC also found that US consumer spending is expected to largely hold up heading into the crucial holiday shopping season, with Americans planning to spend an average of $708 on gifts.
Death of software ‘greatly overstated’ as sector flips the script on chip stocks: Chart of the Day
Software stocks, once left in the dust, have bounced back in recent months as high-flying chip stocks take a back seat.
“One of the things that was greatly overstated earlier this year was the death of software,” Brian Mulberry, Zacks Investment Management chief market strategist, told Yahoo Finance on Tuesday.
“In order to engage with these AI tools … you need software to customize those tools for your business, ” he said.
The iShares Expanded Tech-Software Sector ETF (IGV) is up 15% over the past three months and more than 40% higher from its April lows. Among individual movers, Microsoft (MSFT) and Palantir (PLTR) are both up 30%, while Salesforce (CRM) has risen more than 50% since mid-June.
Federal Reserve interest rate hikes usually pound stocks, but then something surprising happens
Yahoo Finance’s Brian Sozzi reports:
Brace for minor market tremors if the Fed hikes interest rates, as many on Wall Street think will happen later today.
But if history holds up, any losses could prove short-lived.
The S&P 500 has declined by an average of 4.0% over the six weeks following the first Fed rate hike of a cycle across seven such episodes since 1988, per new analysis from strategists at The Kobeissi Letter.
Stocks recovered all of those losses over the next five to six weeks on average. In the six months following the first interest rate hike, the S&P 500 returned 4.0% on average. After 12 months, the S&P 500’s average gain tallied +9.0%. Positive returns have occurred in every episode except 2022 over the twelve months.
“Fed rate hikes have historically been great buying opportunities,” the strategists added.
The same went for other cryptocurrencies and crypto-related stocks, such as Robinhood (HOOD) and Coinbase (COIN), though the losses were not as severe as Tuesday’s rout.
On Tuesday, the Senate voted 49–50 to block the Clarity Act from proceeding beyond debate, stalling progress on a regulatory framework for crypto.
Yahoo Finance’s Hal Bundrick reports on what the vote means for crypto regulation:
In an interview with Yahoo Finance, Faryar Shirzad, chief policy officer at Coinbase, said that if the bill becomes law, it would pave the way forward for digital assets.
“If the bill passes, what you have is the U.S. finally doing what every other G20 country has done, which is to establish legislatively a regulatory framework about how crypto markets operate,” he said. “That’s a huge deal because the future of finance is being built on the blockchain. This law gives developers, innovators, traditional financial companies — all of us — the regulatory certainty we need to know how to build the next generation of finance and what rules apply.”
Shipkevich said cryptocurrency holders are unlikely to see any immediate effects if the Clarity Act becomes law.
“On the institutional side, I can see a short-term, immediate catalyst for new institutional crypto projects,” he said. “I imagine that we will see the institutional space pour more money into the crypto sphere since regulatory clarity is always good for investment.”
Economic data: FOMC rate decision; MBA mortgage applications, week ended Sept. 11 (-2.7% previously); New York Fed services business activity, September (0.5 previously); Retail sales advance, month-on-month, August (+0.9% expected, -0.6% previously); Retail sales ex auto and gas, month-on-month, August (+0.4% expected, -0.2% previously); Import price index, year-on-year, August (+5.9% previously); Export price index, year-on-year, August (+8.2% previously); Business inventories, July (+0.2% expected, +0% previously); NAHB housing market index, September (34 expected, 35 previously)
Asian markets make nervous start ahead of Fed decision
Reuters reports:
Stocks made tentative gains at the start of the Asian trading session on Wednesday as a rise in global bond yields and oil prices paused ahead of the Federal Reserve’s policy decision due later in the day.
MSCI’s broadest index of Asia-Pacific shares outside Japan fluctuated between gains and losses after declining for four consecutive sessions and was last up 0.2%, led by a 0.8% gain in Korean shares. S&P 500 e-mini futures nudged 0.1% higher.
Overnight on Wall Street, the S&P 500 slumped 0.5%, marking its second consecutive day of declines as the yield on the 10-year Treasury bond hit its highest level since 2007.
“U.S. equity markets closed lower overnight as rising Treasury yields, another jump in crude and the polarised debate around pacing AI development left the market in a cautious mood,” said Tony Sycamore, market analyst at IG in Sydney.
