U.S. stocks struggle for direction as investors eye Powell speech

What’s driving markets

U.S. equities were closing out the month on a mildly positive note as traders eschewed big bets ahead of a speech by Federal Reserve Chairman Jay Powell and a raft of economic data in the next few days.

Despite fresh news of contracting China manufacturing, concerns about COVID restrictions in that country impacting the global economy appeared to have died down for now, allowing investors to refocus on the topic that has been driving stocks for much of the year: the Fed’s monetary policy trajectory.

“A speech by Federal Reserve Chair Powell later today is expected to reiterate the central bank’s determination to focus on inflation as its core objective, regardless of the potential ramifications,” said Richard Hunter, head of markets at Interactive Investors,

“Although such comments should be of little surprise, inevitably those searching for confirmation that the Fed will slow its round of rate hikes are likely to be disappointed once more,” Hunter added. Powell is due to speak at the Brookings Institution at 1.30 p.m. Eastern.

The S&P 500 index, the U.S. equity benchmark, has lost 17% this year after the Fed swiftly raised borrowing costs from effectively zero in March to a range of 3.75% to 4% by November.

Henry Allen, strategist at Deutsche Bank, noted Powell’s comments would likely be his last before the Fed begins its media blackout period this weekend ahead of its December 14th policy meeting.

“In addition, today [Wednesday] will bring the latest data on job openings and the quits rate for October, which have recently been cited by the Fed and others as a key gauge of inflationary pressures from the labour market,” Allen added.

ADP on Wednesday said the private sector added 127,000 jobs in November. Economists surveyed by The Wall Street Journal, on average, had looked for a rise of 190,000.

In other data, third-quarter gross domestic product figures were revised to show a 2.9% annual rise versus an initial estimate of 2.6%.

The data docket on Wednesday also includes the November Chicago PMI report at 9:45 a.m.; pending home sales for October at 10 a.m.; and the Fed’s Beige Book at 2 p.m.

One of the Fed’s most closely watched inflation gauges, the personal-consumption expenditures index, will be published on Thursday, followed on Friday by the monthly employment report from the U.S. Labor Department.

Ipek Ozkardeskaya, senior analyst at Swissquote Bank, argued that whatever the upcoming raft of data showed it may be difficult for equities to gain much in the short term.

“Strong economic data, like strong growth and strong jobs means that the Fed will continue its aggressive tightening and could aim for relatively higher terminal rates. That’s bad for stock valuations. And soft inflation figures and softening spending are good for the Fed expectations, but they will boost recession odds, which is obviously not good for the stock valuations either,” she said in a morning bulletin.

“As a result, we have certainly hit a top in the latest S&P 500 rally, and the 200-day moving average, which stands around 4050, which also coincides with the year-to-date descending channel top, should mark the end of the latest bear rally, with the expectation of a further fall to potentially around the 3400 mark. I’m sorry,” Ozkardeskaya concluded.

Companies in focus

• Shares of Dow component Walt Disney Co.
  DIS,
  -0.38%
  ticked up 0.1% after the entertainment conglomerate said it expects its newly reappointed CEO Robert Iger to implement organizational and operating changes to address the board’s goal of boosting profitability, and that the moves could result in impairment charges.

• Crowdstrike Holdings Inc.
  CRWD,
  -17.03%
  fell 20.2% after the cybersecurity company said new subscriptions came in below expectations amid macro headwinds and longer customer buying cycles.

• Hormel Foods Corp.
  HRL,
  -3.42%
  dropped 2.9%, after the meat and food products company topped fiscal fourth-quarter profit forecasts but fell short on sales and provided a downbeat outlook.

• Biogen Inc. stock
  BIIB,
  +5.75%
   BIIB, -0.17% rose 5.3%, after a new study was unveiled late Tuesday that showed the company’s experimental Alzheimer’s drug being developed with Japan’s Eisai moderately reduced cognitive decline after a year and a half.

• Hewlett Packard Enterprise Co.’s
  HPE,
  +2.13%
  stock was up 1.6% after the company reported quarterly results in line with analysts’ estimates and offered strong revenue guidance.