Stocks search for momentum as investors brace for more Fed tightening

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U.S. stocks flipped between gains and losses on Monday as investors braced for a Federal Reserve meeting that’s expected to deliver another large interest-rate hike and shed further light on the Fed’s plans for monetary policy.

What’s happening
  • The Dow Jones Industrial Average

    was down 12 points, or less than 0.1%, at 30,812, after falling 263 points at its session low.

  • The S&P 500

    was off 3 points, or 0.1%, at 3,871.

  • The Nasdaq Composite

    was slightly lower 17 points, or 0.1%, at 11,432.

Last week, Dow industrials fell 4.1% to end at 30,822.42, while the Nasdaq Composite saw a 5.5% weekly drop to 11,448.40. The S&P 500 finished Friday at 3,873.33 — falling 0.7% in the session and 4.8% for the week for its lowest close since July 18 and ending below important chart support at 3,900.

In One Chart: Why stock-market bears are eyeing June lows after S&P 500 falls back below 3,900

What’s driving markets

Stocks searched for upward momentum on Monday following last week’s steep drop, while the market focus was firmly on this week’s two-day meeting of the Fed’s policy-setting Federal Open Market Committee, which is due to end Wednesday. A rate hike of three-quarters of a point is expected, and attention will be put on the accompanying dot plot of rate projections.

“Right now, there’s a growing amount of pessimism and diminished appetite for all risk assets,” said Edward Moya, senior market analyst for the Americas at Oanda Corp. “We are not going to have extreme positioning ahead of the Fed’s decision, and that’s why trading will be volatile for the next 48 hours. The reason investors will hesitate in taking risky positions is that the Fed could signal more tightening to come even as its seems markets have already priced in this wave of hawkishness,” he said via phone.

See: Fed to put a ‘firm foot on the brake pedal’ this week

Stocks felt heat as Treasury yields continued their rise, with the policy-sensitive 2-year rate

heading closer to 4%, a level that some say could shivers throughout the financial market. The last time the 2-year yield ended the New York trading session at 4% or higher was on Oct. 16, 2007, when it closed at 4.127%. Rising yields make bonds look more attractive relative to stocks.

Thomas Peterffy, the chairman and founder of Interactive Brokers, shared some thoughts about where markets might be headed. During a Monday interview with CNBC’s “Squawk Box,” Peterffy said he anticipates “more pain to come” for markets as the Federal Reserve continues to raise interest rates. He indicated that IB’s customer base has allowed its cash balances to climb to record highs, though he didn’t offer any specific figures.

“What’s happening here as rates go higher is that a balancing act is going on in the market and there’s a competition for capital,” said Rob Daly, director of fixed income at Glenmede Investment Management in Philadelphia. With a lot of cash still on the sidelines, “fixed income is looking like a better alternative to equities than we’ve seen in a while,” Daly said via phone.

The National Association of Home Builders said its monthly confidence index fell 3 points to 46 in September, its ninth straight decline, as rising mortgage rates hit the housing market. Meanwhile, the ICE U.S. Dollar Index

inched slightly higher, to 109.79.

Need to Know: The mighty dollar may be about to crack, says this strategist, who offers stocks to watch on either side.

The U.K. stock market was closed in observance of the funeral of Queen Elizabeth II in London, attended by heads of state including U.S. President Joe Biden.

Companies in focus
  • Stocks of the three key vaccine makers fell sharply Monday, after Sunday’s “60 Minutes” interview with President Joe Biden, who said the pandemic is over. Shares of Moderna Inc. 

    fell 9.3%. Pfizer Inc. 

     was down 1.7% and its German partner BioNTech SE

    dropped 8.6%.

  • AutoZone Inc.

    shares fell 2.3% even after the auto parts retailer reported fiscal fourth-quarter profit and sales that rose above expectations, helped by continued strength in its commercial business.

  • German auto maker Volkswagen AG

    is targeting a valuation of up to $71.5 billion (75 billion euros) for its initial public offering of Porsche, in what would be one of Europe’s largest-ever IPOs. Volkswagen’s board announced Sunday it intends to list shares between 76.50 and 82.50 euros, in the middle range of analysts’ expectations. Volkswagen’s U.S. common stock

    rose 3.2%.

Hear from Ray Dalio at the Best New Ideas in Money Festival Sept. 21-22 in New York. The hedge-fund pioneer has strong views on where the economy is headed.

— Steven Goldstein contributed to this article.

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