Market Snapshot: U.S. stocks flip between gains and losses as Fed delivers rate hike, signals higher peak

What’s driving markets

U.S equities traded higher despite traders expressing nervousness over tightening monetary policy and heightened geopolitical tensions in Europe.

“It is proving very difficult for equity markets to make progress this week with chunky official rate hikes in prospect,” wrote Ian Williams, strategist at Peel Hunt.

The Federal Reserve is expected to increase its policy interest rate by 75 basis points to a target rate of 3.0% to 3.25% when it delivers it decision at 2 pm Eastern. The central bank has swiftly raised borrowing costs from near zero earlier in the year as it strives to combat inflation that is currently 8.3%, near multi-decade highs.

“All eyes will be on the Federal Reserve’s latest inflation busting move today, as the price spiral continues to cause financial pain for consumers and companies…There are worries that inflation is becoming dangerously entrenched in the economy, threatening financial stability,” wrote Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.

The sharp rise in interest rates over recent months — and the prospect of more to come — has sparked a sell-off in bonds and pushed benchmark government yields
TMUBMUSD10Y,
3.574%
to 11-year highs, a move that is further pressuring stocks, partly because it makes debt assets relatively more attractive. The S&P 500 index is down 18.6% so far in 2022.

Correlations between Treasury yields, equities, the US dollar, and crypto are at the year’s highs, noted analysts at QCP Capital. It is “no doubt a sign that liquidity (or the withdrawal of it) is front and center as the main driver of all markets now,” the analysts said.

The Fed’s expected move comes after the Swedish central bank on Tuesday delivered a more-hawkish-than-expected 100 basis point rate hike and before an expected rate rise from the Bank of England on Thursday.

“Central banks are demonstrating greater resolve to fighting inflation, and increasingly willing to sacrifice growth to get there,” said Nathan Sheets, global chief economist at Citi.

Also suppressing sentiment on Wednesday was news that Russian president Vladimir Putin had called for a partial military mobilization of the country to prosecute his attack on Ukraine. The announcement, which included threats against the West, raised fears of a further escalation in the conflict.

Energy prices slumped, with U.S. WTI crude futures
CL.1,
-1.37%
down 1.2% to $83.44 a barrel and the ICE Dutch TTF natural gas futures, the continent’s benchmark, down 0.6% to 193 euros per megawatt hour. The euro
EURUSD,
-1.00%
fell 0.9% to $0.9879, pushing the dollar index back near its 20-year peak.

In U.S. economic data, existing-home sales in the country fell 0.4% in August to 4.8 million, the lowest level since May 2020, the National Association of Realtors said Wednesday.

Companies in focus

Shares of General Mills Inc. 
GIS,
+6.60%
rose 7% Wednesday, after the branded consumer foods company, which brands include Cheerios, Betty Crocker and Häagen-Dazs, reported fiscal first-quarter profit that rose above expectations and raised its full-year outlook.

Shares of Glatfelter Corp.
GLT,
-4.07%
 went down 5.4% Wednesday, after the supplier of engineered materials said it suspended its quarterly dividend, as part of a “reprioritization” of capital as it focuses its efforts on optimizing financial results. 

Shares of defense companies were higher after Russian President Vladimir Putin mobilized more troops to Ukraine in what’s seen as a major escalation of the Ukraine war. Lockheed Martin
LMT,
+2.35%
was up 2.4%, Northrop Grumman rose 2.8% and Raytheon
RTX,
+2.07%
went up 2.5%.

Beyond Meat Inc.
BYND,
+2.93%
late Tuesday said it suspended Chief Operating Officer Doug Ramsey, who was arrested over the weekend and charged after allegedly biting a man’s nose during an altercation in Arkansas. The plant-based meat substitutes producer saw its shares up 7%.