By Frances Yue and Jamie Chisholm
Fed minutes on tap for 2 p.m. Eastern
U.S. stocks opened higher on Wednesday after a Tuesday 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
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 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 , 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
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-Frances Yue
(END) Dow Jones Newswires
02-22-23 0946ET
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