Wall Street Set to Rise as Fed in Focus and Easing Evergrande Concerns

On Wednesday, US stock indexes saw a rebound from their recent losses, thanks to easing concerns regarding a default by China’s Evergrande eased and investors shifted their focus towards the Federal Reserve’s meeting that will give some policy cues. According to Evergrande’s main unit, they have entered into a deal with bondholders that will help them settle interest payments associated with a domestic bond. This relieved some of the fears over an imminent default, which could have led to global financial chaos. The best performers in early trading were energy stocks, as they rose by 2.8%.

Oil prices also experienced an increase, while there was a 1.3% addition in financials, with major banks making higher Treasury yields. Nonetheless, Wall Street indexes are experiencing steep losses in September because seasonally weak trends were exacerbated due to fears of Evergrande’s default. This pushed investors to pull out of stocks that were trading at lofty valuations. At the time of closing on Tuesday, the S&P 500 had declined by 2.4% from the record intraday trading high it had hit earlier in the month. A potential increase in corporate taxes and uncertainty relating to US fiscal spending has also had an impact on stocks this month.

Now, the focus has shifted towards the Fed’s decision, which is due at 2 p.m. ET. It is possible that the bank may unveil its plans of tapering off the massive stimulus measures that were introduced because of the coronavirus. This month, there have also been positive readings where factory activity and retail sales are concerned, which has strengthened expectations of an announcement by the central bank about scaling back their measures as early as September. However, since the stock market was showing weakness, analysts questioned if the Fed would take the risk of increasing volatility, considering that any announcement regarding tapering off was likely to trigger stock selling.

Market analysts said that the recent turmoil in the stock market, the surprisingly weak jobs report in August and looming fiscal cliff are all excellent excuses for Jerome Powell, the Federal Reserve Chair, to reiterate their intent to taper, but not actually commit to start tapering in November. Markets shouldn’t theoretically be surprised with the announcement of tapering off in November, but they could certainly be rattled by a firm commitment of the Fed to begin tapering purchases in early November.

The Dow Jones industrial average also saw an increase of 0.61%, whereas the S&P 500 saw a gain of 0.45%. The Nasdaq Composite also gained by 0.22%. This month, the Nasdaq has declined the least as compared to its peers, as investors have once more shifted towards big technology names that had shown resilience throughout the pandemic. Where individual stocks are concerned, there was an 8% decline in FedEx Corp upon posting a lower quarterly profit and as they cut down their earnings forecast for the full year. The S&P 500 didn’t post any new 52-week highs, but did have five new lows, while Nasdaq saw 30 new lows and 25 new highs. 

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