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

What’s driving markets

U.S. stocks opened higher Wednesday after suffering the biggest 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.

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 S&P 500 closed below 4,000 as 2-year Treasury yields flirted with their highest level since 2007. The CBOE Vix index
VIX,
+2.19%,
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 on Wednesday 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.
  GNS,
  ,
  a Singapore-based education company, saw its shares up 2.6% 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.
  WING,
  +9.85%
  stock soared 15.7% Wednesday, after the operator of aviation-themed chicken-wing restaurants beat estimates for the fourth quarter by a comfortable margin.

• Intel Corp.
  INTC,
  -0.50%
  shares rose 1% 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.
  COIN,
  -2.55%
  shares edged up 4.4% 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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