The futures markets are trading flattish ahead of the Federal Reserve Open Market Committee's interest rate policy decision later this afternoon. Inflationary pressures have declined a bit over the past few months, as the February Consumer Price Index was up 6.0% year over year. However, a few regional banks, such as Silicon Valley Bank, have notably failed over the past few weeks, showing that rising interest rates are impacting some banks' financial stability. The bank failures have caused interest rate expectations to fall considerably over the past few trading sessions. Most traders are now projecting that interest rates will be hiked by 25 basis points later today, causing the target interest rate to be a range of 4.75% - 5.00%, though a small contingent of market participants is expecting interest rates to remain at current levels. Federal Reserve Chairman Jerome Powell will also give a press conference explaining the decision, and traders will look to see what information can be gleaned about future monetary policy. Overall, we think trading will be relatively muted until the decision and accompanying press conference are given.
The stock market traded positively yesterday, as market participants bought financials after the Federal Reserve and several large banks made moves over the weekend to shore up regional bank stability. The indices largely traded upward throughout the day and ended not too far from their highs, reaching price levels previously touched before the recent banking failures. Overall, the S&P 500 rose 51 points (up 1.3%), the NASDAQ increased 185 points (up 1.6%), and the Dow Jones Industrial Average finished higher by 316 points (up 1.0%). Market breadth was quite positive, with advancers outpacing decliners by a 3.5-to-1.0 ratio. Energy stocks were among the best performers yesterday, while interest-rate-sensitive utilities and REITs were among the worst. Bank stocks also notably rebounded after falling considerably in price over the past few weeks.
In commodity news, oil prices increased yesterday as demand expectations increased for the fuel source. Elsewhere, U.S. Treasury bond yields were largely higher ahead of the Fed meeting. The Chicago Board Options Exchange Volatility Index, or VIX, fell yesterday as expectations for future stock price volatility declined, hurting demand for options protection.
Several economic reports will be released in the days ahead. These include initial and continuing jobless claims and new home sales for February on Thursday. On Friday, S&P Global will release its flash U.S. Services and Manufacturing Purchasing Managers Index (PMI), giving insight into future inflation. Additionally, several dozen mostly-smaller companies will release quarterly results and guidance in the days ahead. For today though, the outcome of the Federal Reserve meeting will be investors’ main focus. - John E. Seibert III
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
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