Wall Street staggers to higher close as Fed rate hike looms

US STOCKS ended a directionless session higher on Wednesday as an on-target inflation report largely stanched the flow of Tuesday’s sell-off and investors pressed the “pause” button.

All three indexes wavered throughout the day but ultimately ended in positive territory. They all failed to meaningfully recover ground lost in Tuesday’s carnage which wrought their largest percentage plunges in more than two years.

The Dow Jones Industrial Average rose 30.12 points or 0.1% to 31,135.09, the S&P 500 gained 13.32 points or 0.34% to 3,946.01 while the Nasdaq Composite added 86.10 points or 0.74% to 11,719.68.

“Today is a lick-your-wounds day after taking body blows yesterday,” said Ryan Detrick, chief market strategist at Carson Group in Omaha, Nebraska. “It’s a day of rest and that’s somewhat of a welcome sign.”

The Labour Department’s producer prices (PPI) data landed close to consensus estimates and provided some relief in the aftermath of Tuesday’s market-rattling CPI print which came in hotter than expected.

“The inflation debate continues and yesterday was a harsh reminder that this is a tough battle and that the Fed needs to remain aggressive to put a lid on the widespread inflationary prices we’re seeing,” Detrick added.

The PPI report offered reassurance that inflation is indeed on a slow, downward trajectory.

But it still has a long way to go before it approaches the US Federal Reserve’s average annual 2% inflation target, and while financial markets have fully priced in an interest rate hike of at least 75 basis points at the conclusion of the Federal Open Market Committee’s (FOMC) policy meeting next week, they see a 22% likelihood of a super-sized, 100 basis-point increase, according to CME’s FedWatch tool.

Two-year US Treasury yields which reflect interest rate expectations extended Tuesday’s rise.

The size and duration of further interest rate hikes going forward have many market observers concerned over the lagging effects of the Fed’s tightening phase with some viewing recession as unavoidable.

The transportation sector seen as a barometer of economic health and which provides a glimpse into the supply side of the inflation picture was weighed down by rail stocks in the face of a potential strike.

Railroad operators Union Pacific, Norfolk Southern and CSX Corp lost 3.7%, 2.2% and 1.0% respectively even as Labour Secretary Marty Walsh met with union representatives in Washington in talks aimed at preventing a rail shutdown.

Six of the 11 major sectors of the S&P 500 advanced with energy stocks leading the gainers with an assist from rising crude prices due to supply concerns.

Starbucks Corp shares jumped 5.5% after the company upped its three-year profit and sales outlook.

Tesla Inc bounced back from Tuesday’s drop, advancing 3.6% on the same day President Joe Biden announced US$900 mil in funding for electric vehicle charging stations.

Advancing issues outnumbered declining ones on the NYSE by a 1.05-to-1 ratio; on Nasdaq, a 1.06-to-1 ratio favoured decliners.

The S&P 500 posted two new 52-week highs and 30 new lows; the Nasdaq Composite recorded 26 new highs and 219 new lows.

Volume on US exchanges was 10.90 billion shares compared with 10.33 billion average over the last 20 trading days. – Sept 15, 2022

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