Dow Jones fails to eke out a win as investors brace for interest rate hike

4:09pm: Dow can’t quite eke out a winning day

The Dow closed Wednesday down 58 points, 0.2%, at 32,799, while the Nasdaq Composite added 46 points, 0.4$, to 11,576 and the S&P 500 added 8 points, 0.1%, to 3,992. The small-cap Russell 2000 index fell 1 point to 1,877.

The market endured an up-and-down day as investors are bracing for a higher-than-expected interest rate hike following Federal Reserve Chairman Jerome Powell’s two days of testimony before Congress this week. 

What’s more, job openings fell less than expected in January, while February’s private payrolls report came in stronger than anticipated.

“It just raises the idea that they may have to do more,” said Kathy Bostjancic, chief economist at Nationwide, per CNBC. “The fact that they’re even willing to go rev it up, it introduces the idea even more so that they make a policy mistake — that this results in a hard landing for the economy.”

12.05pm: Latest jobs data continues to come in ‘hot’

US stocks were mixed in noon trading after data revealed that job openings fell less than expected in January, while February’s private payrolls report came in stronger than anticipated.

At midday, the Dow lost 46 points to 32,811 while the S&P 500 added 10 points at 3,997 and the tech-heavy Nasdaq rose 66 points to 11,596.    

“After the day that Powell shook markets, Wall Street is getting further signs that the job market still remains tight,” Oanda’s senior market analyst Ed Moya said.

“Disinflation trends won’t quickly return as the economy has too many job openings and while ADP is still viewed by many as unreliable, it does seem to make sense when you look at the construction and leisure hospitality components,” he added.

Notable movers included shares of CrowdStrike Holdings, Inc, which rose nearly 3% after the cybersecurity company posted 4Q fiscal 2023 that exceeded expectations on both the top and bottom line, just one day after its stock moved higher on the news it had partnered with Dell Technologies.

9.40am: Investors on the sidelines ahead of Powell’s comments

US stocks were flat at the open as investors awaited further commentary from Fed chair Jerome Powell and ahead of Friday’s key non-farm payrolls report.

Just after the market opened, the Dow Jones Industrial Average was sitting at 32,856 points, the S&P 500 at 3,986 points, and the Nasdaq at 11,537 points. market analyst Fiona Cincotta said investors were licking their wounds after yesterday’s steep selloff, sitting on the sidelines ahead of Fed Powell’s second day of testimony before lawmakers.

“Attention will be on Friday’s non-farm payrolls to see whether the blowout January numbers were a one-off,” she said. “A hot labour market piles pressure on the Fed to keep raising interest rates aggressively.”

9.15am: US private payrolls increase

With all eyes now on Friday’s February US non-farm payrolls report following Federal Reserve chair Jerome Powell’s hawkish comments on interest rates in Congressional testimony on Tuesday, the latest US private payrolls report showed continued strength in the labor market. 

ADP has reported a 242,000 increase in US private payrolls in February, above the consensus forecast of 200,000.

However, in reaction, Kieran Clancy, senior US economist at Pantheon Macroeconomics commented: “In one line: ADP is an unreliable guide to payrolls; ignore it.”

He added: “ADP has published only six previous payroll numbers using its new methodology, so we don’t yet know whether it will prove to be a reliable indicator. Four of these readings undershot the official private jobs number—including the massive 337K undershoot in January—though this is nothing like enough to prove definitively that the ADP’s number is systematically biased to the downside.

“Our model is based on the hard employment data from Homebase, and ignores the ADP number; that model nailed January, and points to a 200K increase in February payrolls.”

6.30am: Powell turns hawkish

Wall Street is expected to open higher on Wednesday, recovering from Tuesday’s sell-off which came after Federal Reserve chair Jerome Powell gave a hawkish testimony to the US Congress, with a second day of hearings due today. 

Futures for the Dow Jones Industrial Average (DJIA) rose 0.2% in pre-market trading, while those for the broader S&P 500 index also gained 0.2%, and contracts for the Nasdaq-100 added 0.3%.

Stocks fell sharply after Powell told the Senate Banking, Housing, and Urban Affairs Committee that the Fed would be “prepared to increase the pace of rate hikes” if the “totality of the data were to indicate that faster tightening is warranted.”

The DJIA closed 1.7% lower on Tuesday at 32,857, the Nasdaq Composite tumbled 1.3% to 11,530, and the S&P 500 lost 1.5% to 3,986. The small-cap Russell 2000 index dropped 1% to 1,880. 

“Any prospect that we might see a dovish Powell yesterday was quickly dashed as the Federal Reserve chairman struck quite a different tone to the one he used at the last FOMC (Federal Open Market Committee) press conference,” commented Michael Hewson, chief market analyst at CMC Markets. “While markets focussed on his comments about disinflation at the beginning of February, there was only one mention of that word in his statement, in his remarks to US lawmakers yesterday, and that was to say there was little sign of it.”

Hewson said Powell’s comments that the pace of rate hikes may need to be accelerated and that the likely rate peak could well be higher than expected were not well received by markets, but given the strength of recent data, he said the change of tone shouldn’t have been surprising.

“The Fed has always insisted it is data dependent and Powell’s comments appear to reflect that, given the strength of recent data, which means as strong as yesterday’s reaction was, with 2-year yields pushing above 5% for the first time since 2007, it could just as quickly reverse if this week’s payrolls data or next week’s CPI numbers disappoint,” he added.

Due today, the February ADP private payrolls report is expected to reveal an improvement to about 200,000 from 106,000 in January, providing the first clues as to Friday’s non-farm payrolls numbers, noted TickMill Group market analyst Patrick Munnelly.

“Although the two data points are rarely perfectly aligned, markets will certainly have an eye on the release,” Munnelly added. “It is noteworthy that ADP has been weaker than official non-farm payrolls recently, any print at or above 200,000 for private payrolls would suggest the employment landscape remains tight stateside, adding further fuel to expectations of a larger Fed hike on March 22nd.”