2023.09.20

Key Takeaways

Wall Street indexes decline ahead of the Federal Reserve’s monetary policy meeting.

Market attention is focused on the Fed’s stance on inflation and interest rates, with expectations of unchanged rates.

Introduction

On Tuesday, Wall Street experienced a broad sell-off, with all three major indexes closing lower, as investors adopted a risk-off sentiment in anticipation of the U.S. Federal Reserve’s crucial two-day monetary policy meeting. The Fed’s interest rate announcement scheduled for Wednesday is expected to maintain key interest rates at their current levels.

Market’s Focus on Fed’s Communication

Bill Northey, Senior Investment Director at U.S. Bank Wealth Management, highlighted the significance of the upcoming Federal Reserve announcement. He mentioned, “It’s a big set up coming into tomorrow, and markets are clearly focused on any change in communication from the Federal Reserve.” Northey particularly expects intense scrutiny of the Fed’s perspective on inflation during the post-meeting press conference.

He added, “Broad inflation readings have shown marked progress over the last year, but the last mile of inflation is likely going to be more challenging, bringing it back toward the Federal Reserve’s target of 2%.”

The Fed is also set to release its Summary Economic Projections, including the dot plot, which will provide insights into the Federal Open Markets Committee’s forecasts for interest rates, inflation, and economic growth.

Market Expectations

Michael Green, Chief Strategist at Simplify Asset Management, emphasized that the market currently anticipates a pause in interest rate changes but is increasingly concerned that rates may remain higher for an extended period. Green noted, “If (the Fed) announced that they are removing rate cuts in 2024 by raising the dot plot, it would generally be seen as a very hawkish pause.”

CME’s FedWatch tool indicates that financial markets have priced in a 99% probability that the central bank will leave its key Fed funds target rate unchanged at 5.25%-5.00% on Wednesday. Additionally, there is a growing 70.9% likelihood of the Fed maintaining the status quo at its next meeting in November.

Economic Factors

The market’s uncertainty was also influenced by economic factors, including Canada’s annual inflation rate, which surged due to rising gasoline prices. Furthermore, a larger-than-expected drop in U.S. housing starts added to investor unease.

IPO Activity

Despite the overall cautious sentiment, the IPO market showed signs of life. Grocery delivery app Instacart’s parent company, Maplebear Inc (CART.O), made its Nasdaq debut, following chipmaker Arm Holdings’ successful entry into the public marketplace last week. Maplebear shares surged 12.3%, while Arm Holdings declined by 4.9%.

Closing Numbers

– The Dow Jones Industrial Average (.DJI) dropped 106.57 points, or 0.31%, closing at 34,517.73.
– The S&P 500 (.SPX) lost 9.58 points, or 0.22%, to finish at 4,443.95.
– The Nasdaq Composite (.IXIC) decreased by 32.05 points, or 0.23%, ending the day at 13,678.19.

Sector Performance

Nine of the eleven major sectors of the S&P 500 concluded the session in the red, with energy (.SPNY) and consumer discretionary (.SPLRCD) experiencing the most significant percentage declines.

Notable Stock Movements

– Walt Disney (DIS.N) saw a decline after announcing a nearly doubled capital expenditure for its parks business over the next decade.
– Starbucks (SBUX.O) lost ground following TD Cowen’s decision to downgrade the coffee chain’s shares to “underperform.”
– Automakers General Motors (GM.N) and Ford Motor Co (F.N) advanced as the United Auto Workers union planned to announce more strikes on Friday if no substantial progress is made in ongoing talks with automakers.

Market Statistics

Declining issues outnumbered advancing ones on the NYSE by a ratio of 1.67-to-1, while on Nasdaq, a ratio of 1.47-to-1 favored decliners.

The S&P 500 saw seven new 52-week highs and nine new lows, while the Nasdaq Composite recorded 33 new highs and 257 new lows.