U.S. stocks dipped on Wednesday morning as investors readied for Wednesday’s highly anticipated Federal Reserve decision.
The Dow Jones Industrial Average slipped 110 points, or 0.3%. The S&P 500 lost 0.2%, while the tech-heavy Nasdaq Composite was down nearly 0.5%.
Energy stocks struggled on Wednesday morning, with Occidental Petroleum falling more than 4%. Eli Lilly rose more than 8% each to lead the S&P 500 after the pharmaceutical company said it expected earnings to rise next year. Boeing was one of the worst performers in the Dow, falling about 2.2%.
The Fed will conclude its two-day policy meeting on Wednesday and the public will hear from central bank Chairman Jerome Powell at a 2:30 p.m. ET news conference.
The Fed is grappling with the highest inflation level in 39 years and the central bank is widely expected to announce an acceleration of the tapering of its bond-buying program, which was put in place during the pandemic to prop up the economy.
“Investors remain on a buyers strike in front of the FOMC meeting,” Fundstrat’s Tom Lee wrote in a note. “Tapering is not the ‘hawkish pivot’ that ends bull markets, but it is a hawkish pivot relative to the massive easing since the pandemic started. So we think this buyers strike in front of FOMC could turn into a ‘buy the event.'”
This sets the stage for a dramatic policy shift that will clear the way for a first interest rate hike next year.
A CNBC Fed Survey predicts the Fed will double the pace of the taper to $30 billion at its December meeting, which would end the $120 billion in monthly asset purchases by about March. The central bank will then hike rates three times in each of the next two years, starting in June 2022, the survey respondents predict.
“While the chairman is not likely to suggest any specific timeframe for when the funds rate will begin to be lifted, he probably will confirm that some members do want to move more quickly than previously announced in raising interest rates,” said Jim Paulsen, chief investment strategist for Leuthold Group.
“I would not expect the Fed to say much that is not already anticipated by the financial markets,” Paulsen added. “Some of the recent stock market volatility may lessen after this two-day meeting and its press conference is finally concluded.”
Retail sales for November came in worse than expected, rising 0.3% month-over-month. Economists surveyed by Dow Jones were looking for a 0.8% month.
On the political front, congressional Democrats passed a bill raising the debt ceiling, sending it to President Joe Biden early Wednesday just under the wire for when Treasury Secretary Janet Yellen said the government would run out of spending power.
On Tuesday, the major averages slipped, exacerbated by selling in software names like Microsoft and Adobe. The Dow Jones Industrial Average lost 106 points. The S&P 500 fell 0.75%.
The technology-focused Nasdaq Composite was the relative underperformer, dipping 1.1% as Facebook-parent Meta Platforms, Amazon, Apple, Netflix and Google-parent Alphabet all closed lower.
Also hurting sentiment Tuesday was the hotter-than-expected inflation reading for November’s producer price index showing a year-over-year increase of 9.6%, the fastest pace on record. This was above the 9.2% expected by economists, according to Dow Jones. The index rose 0.8% month over month, above the 0.5% expected.
While the Fed meeting is in focus, investors are also monitoring the new Covid variant omicron. The World Health Organization on Tuesday warned the new Covid-19 omicron variant is spreading faster than any previous strain, and is likely in most countries of the world.
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