By Devik Jain and David French
(Reuters) – Wall Street’s main indexes were flat in the early afternoon on Monday amid choppy trading, bouncing around as investors waited to see how aggressive the Federal Reserve would be this week with its interest rate hike.
Even more so than the Ukraine war or corporate earnings, the actions of the U.S. central bank are driving market sentiment as traders try to position themselves for a rising interest rate environment.
The and the Nasdaq logged their worst weekly percentage drop since June on Friday as markets fully priced in at least a 75 basis point rise in rates at the end of Fed’s Sept. 20-21 policy meeting, with Fed funds futures showing a 15% chance of a whopping 100 bps increase.
Unexpectedly hot August inflation data last week also raised bets on increased rate hikes down the road, with the terminal rate for U.S. fed funds now at 4.46%.
“The path of least resistance is still down. The trend followers out there will continue to try to sell every chance they get until we start to see some clarity (on Fed and inflation),” said Joe Saluzzi, co-head of equity trading at Themis Trading LLC.
“We haven’t seen a widespread panic selling or anything like that over the year. It’s a lower volume market, which means that folks are probably just sitting tight at this point waiting to see the next step.”
Focus will also be on new economic projections, due to be published alongside the Fed’s policy statement at 2 p.m. ET (1800 GMT) on Wednesday.
Worries of Fed tightening have led to a 19% decline in the S&P 500 this year, with a recent dire earnings report from delivery firm FedEx Corp (NYSE:), an inverted U.S. Treasury yield curve and warnings from the World Bank and the IMF about an impending global economic slowdown adding to the woes.
Goldman Sachs (NYSE:) cut its forecast for 2023 U.S. GDP late on Friday as it projects a more aggressive Fed and sees that pushing the jobless rate higher than it previously expected.
By 1:53 p.m. ET, the fell 19.45 points, or 0.06%, to 30,802.97, the S&P 500 lost 2.26 points, or 0.06%, to 3,871.07 and the dropped 5.63 points, or 0.05%, to 11,442.78.
Four of the 11 S&P 500 sectors were lower. Healthcare stocks fell 1.1%, weighed down by a 9.2% fall in shares of Moderna (NASDAQ:) Inc and similar declines in those of other vaccine makers a day after President Joe Biden said in a CBS interview that “the pandemic is over”.
Industrial stocks rebounded 0.7% after a sharp drop on Friday. Banks gained 0.5%. Tech heavyweights Apple Inc (NASDAQ:) and Tesla (NASDAQ:) Inc rose more than 1% each to provide the biggest boost to S&P 500 and the Nasdaq.
Take-Two (NASDAQ:) Interactive Software Inc dipped 0.2%, recovering from a steeper slump earlier in the day, after it confirmed that a hacker had leaked the early footage of Grand Theft Auto VI, the next installment of the best-selling videogame.
Meanwhile, Knowbe4 Inc jumped 28.3% to $22.19, its highest level since early May, after the cybersecurity firm said that Vista Equity Partners had offered to take it private for $24 per share, valuing the company at $4.22 billion.