Dow attempts bounce after stock market’s worst day of 2023

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U.S. stocks gave up early gains Wednesday to trade slightly lower, a day after a selloff that sent the Dow industrials down by nearly 700 points and wiped out 2023 gains for the blue-chip gauge.

How are stock indexes trading

  • The Dow Jones Industrial Average lost 41 points, or 0.1%, to 33,085.
  • S&P 500 dropped 10.4 points, or 0.3% to 3,986
  • The Nasdaq Composite declined 37 points, or 0.3% to 11,453

On Tuesday, the Dow fell nearly 700 points, or 2.1%, while the S&P 500 declined 2% and the Nasdaq Composite dropped 2.5%, marking the worst day of 2023 for all three major indexes.

What’s driving markets

U.S. stocks traded lower Wednesday after suffering the biggest daily selloff in over two months as concerns about higher borrowing costs continued to damp investor sentiment.

Stocks had jumped at the start of the year on hopes that easing inflation could allow the Federal Reserve to start cutting interest rates later in the year after hiking them sharply since March 2022.

However, recent data has shown the U.S. economy remains resilient in the face of the Fed’s sharp tightening of monetary policy, and this has pushed bond yields higher in anticipation of further Fed hawkishness.

“The market re-prices information quickly,” said Eric Merlis, managing director and co-head of global markets at Citizens. The stock market’s recent retreat “is a recognition that the Fed has more to go (with its interest rates hikes), and may not be easing (its monetary policy) this year,” Merlis said in a call.

“Look at the play on earnings, we thought the Fed was neutral, and disinflation might be the story for the remainder of the year. That doesn’t look like the case,” Merlis said.

St. Louis Fed President James Bullard on Wednesday said he thought markets had previously “overpriced” the risk of recession in the second half of 2022 and the first half of 2023 and may now be overpricing the risk in the second half of this year.

Bullard, who isnt’a voting member of the rate-setting Federal Open Market Committee this year, continues to expect a peak fed-funds rate of 5.38% (or a range of 5.25% — 5.5%). He told reporters last week that he would revisit this estimate after the January personal-consumption expenditures data is released on Friday.

The 2-year Treasury yields on Tuesday flirted with their highest level since 2007. The CBOE Vix index a measure of expected stock market volatility, stands above 23, having dipped below 18 at the start of the month.

‘’Investors are waking up to a stark realization that the Fed’s work is not done, and that interest rates may have to be hiked even higher to cool hot inflation,” said Susannah Streeter, head of money and markets at Hargreaves Lansdown.

“High hopes that the Federal Reserve could cut rates by the end of the year have been dashed, replaced by worries that up to three hikes in quick succession may be needed to tame the price spiral,” Streeter added.

With this in mind, traders will be warily eyeing the minutes of the Fed’s Jan. 31-Feb. 1 policy meeting which will be published at 2 p.m. Eastern. The Fed delivered a 25 basis point, or quarter of a percentage point, rise in the fed-funds rate at that meeting.

Last week, Bullard and Cleveland Fed President Loretta Mester said they had argued for a 50 basis point hike in the fed-funds rate at that meeting. Investors will pay close attention to the minutes for signs other policy makers had also urged a large hike.

New York Fed President John Williams is scheduled to deliver comments at 5:30 p.m.

Need to Know: Here’s why one technical analyst says the stock market is due a bounce after the 697-point selloff in the Dow

Companies in focus

  • Genius Group Ltd. a Singapore-based education company, saw its shares down 1% after the company said Wednesday it would take legal action against various parties over what it alleged is illegal trading in its shares.
  • Wingstop Inc. stock soared 9.5% Wednesday, after the operator of aviation-themed chicken-wing restaurants beat estimates for the fourth quarter by a comfortable margin.
  • Intel Corp. shares declined 0.5% after the chip company announced Wednesday that it would cut its dividend. Intel will pay a quarterly dividend of $0.125 a share, whereas the company’s prior quarterly dividend was $0.365 a share. 
  • Coinbase Global Inc. shares went down 3.2% after the crypto exchange reported fourth-quarter results that beat estimates, and said the crypto market had “improved” so far in the first quarter but that the rest of the year remains cloudy.

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