U.S. stocks struggle for direction as traders await Fed comments

What’s driving markets

Stocks were struggling for direction Wednesday as traders eschewed bold bets ahead of the Federal Reserve’s monetary policy decision due at 2 p.m. Eastern.

The central bank is widely expected to raise its policy interest rate by another 25 basis points to a range of 5.25% to 5.50%, but markets are unsure whether that will mark the end of this current monetary tightening cycle.

Consequently, it is the Fed’s accompanying statement and comments from Chair Jerome Powell at his press conference, starting at 2:30 p.m., that will carry the greater heft, as investors seek guidance on the future trajectory for borrowing costs.

“A +25bp hike is largely expected but that is not what will move markets. It is the qualitative views around the Fed’s sense of progress on the inflation war that matters,” wrote Tom Lee, head of research at Fundstrat, in a note to clients.

Lee added that given the Fed’s likely comments and how the market is set up, he thought the probabilities favor an S&P 500 index rally post-FOMC of greater than 1%.

“It’s really hard for me to see with inflation behaving so much better, the Fed would be more aggressive,” said Stephen Hoedt, managing director at equity and fixed income research of Key Private Bank.

Still, Lauren Goodwin, senior director of multi-asset solutions at New York Life Investments, said the market may be underpricing  the risk of another rate hike in September.

“Inflation, and especially ex-shelter services inflation, is still high. The Fed has been clear that it favors getting inflation under control even at the expense of an economic slowdown or recession,” Goodwin wrote in a Wednesday note.

Meanwhile, also contributing to the market’s relative stasis on Wednesday were counteracting reactions on the earnings front.

Shares in tech behemoths Microsoft
MSFT,
-4.53%
and Alphabet
GOOG,
+5.89%
went in opposite directions following their results and guidance late on Tuesday.

Traders are in the middle of a week in which about 170 companies from the S&P 500, representing roughly 40% of the benchmark’s market capitalization, will report their earnings.

The results of AT&T
T,
+0.37%,
Boeing
BA,
+6.60%,
Coca-Cola
KO,
+1.00%
and General Dynamics
GD,
+2.79%
were also published early Wednesday, while Meta Platforms
META,
+0.62%,
Lam Research
LRCX,
-1.98%
and eBay
EBAY,
+0.28%
will feature after the close.

In U.S. economic data, U.S. new home sales fell 2.5% to an annual rate of 697,000 in June, from a revised 715,000 in the prior month, the Commerce Department reported Wednesday. 

Companies in focus

• Alphabet Inc.
  GOOG,
  +5.89%

  GOOGL,
  +6.06%
  stock rose over 5% Wednesday after the Google parent topped Wall Street profit and sales estimates on strong advertising sales.

• Microsoft Corp.‘s
  MSFT,
  -4.53%
  was down 4% after management said the process of generating revenue from AI use cases would be gradual.

• Snap Inc.
  SNAP,
  -18.59%
  tanked 19% after the social-media company forecast worse-than-expected sales for its current quarter.

• Boeing Co. 
  BA,
  +6.60%
  jumped 5.7% toward an 18-month high after the aerospace and defense giant reported big second-quarter revenue and free cash flow beats, amid strength in its commercial airplanes business.

• Texas Instruments Inc.
  TXN,
  -5.28%
  dropped more than 5% after the chip maker’s forecast came in lower than expected as it continues building out capacity amid rising inventory.

• Wells Fargo & Co.
  WFC,
  +2.12%
   rose 1.8% after the bank said its board approved a new share buyback program of up to $30 billion and a dividend increase.

• PacWest Bancorp
  PACW,
  +27.70%
  rocketed almost 30% as the Banc of California
  BANC,
  +0.88%
  confirmed plans to buy the troubled regional lender.