Interest Rate Concerns May Continue To Weigh On Wall Street

The major U.S. index futures are currently pointing to a lower open on Wednesday, with stocks likely to see further downside following the sell-off seen over the course of the previous session.

Concerns about the outlook for interest rates may continue to weigh on the markets ahead of the Federal Reserve’s monetary policy announcement this afternoon.

While the Fed is widely expected to leave rates unchanged, traders will pay close to the wording of the accompanying statement along with Fed Chair Jerome Powell’s post-meeting press conference.

“Yesterday’s late selloff characterized a shift in the market’s mindset from hopes of monetary accommodation to acceptance that higher rates will persist,” said John Lynch, Chief Investment Officer for Comerica Wealth Management.

“Consequently, today’s big news will likely come from Treasury’s refunding announcement rather than the FOMC,” he added. “Any signs of increased liquidity should enable economic demand, and risk assets, to regain their footing.”

Despite the downward momentum for the broader markets, shares of Amazon (AMZN) are likely to see initial strength after the online retail giant reported better than expected first quarter results.

Stock prices went down south on Wall Street on Tuesday, sliding lower and lower after a weak start, as concerns about inflation and uncertainty about the Fed’s interest rate moves rendered the mood bearish.

Investors digested a mixed batch of earnings updates and some disappointing economic data.

The major averages all ended sharply lower, with the Nasdaq suffering a more pronounced loss. The Dow ended down by 570.17 points or 1.5 percent at 37,815.92. The S&P 500 dropped 80.48 points or 1.6 percent to 5,035.69, while the Nasdaq tumbled 325.26 points or 2.0 percent to settle at 15,657.82.

A report from MNI Indicators showed Chicago-area business unexpectedly contracted at an accelerated rate in the month of April.

The report said the Chicago business barometer dropped to 37.9 in April from 41.4 in March, with a reading below 50 indicating contraction. Economists had expected the index to rise to 44.9.

With the unexpected decrease, the Chicago business barometer fell to its lowest level since November 2022.

A separate report released by the Conference Board showed consumer confidence in the U.S. deteriorated by much more than expected in the month of April.

The Conference Board said its consumer confidence index slid to 97.0 in April from a downwardly revised 103.1 in March. Economists had expected the index to dip to 140.0 from the 104.7 originally reported for the previous month.

Meanwhile, data from the Labor Department showed labor costs in the U.S. rose more than expected last quarter, up by 1.2 percent, indicating a rise in wage pressures.

Microsoft Corporation shares dropped about 3.2 percent. Amazon ended down by 3.3 percent. Apple Inc., NVIDIA Corporation, Alphabet, Meta Platforms, JP Morgan Chase, Oracle, Chevron, Bank of America, Exxon Mobil, Visa Inc and Walmart ended with sharp to moderate losses.

Eli Lilly shares rallied nearly 6 percent after the company reported stronger than expected quarterly earnings. 3M also surged higher after reporting strong first quarter earnings.

PayPal shares climbed higher after the company said its total payment volume in the first quarter rose by 14% to $403.9 billion.

Commodity, Currency Markets

Crude oil futures are tumbling $1.38 to $80.55 a barrel after sliding $0.70 to $81.93 a barrel on Tuesday. Meanwhile, an ounce of gold is trading at $2,306.60, up $3.70 compared to the previous session’s close of $2,302.90 Tuesday, gold plunged $54.80.

On the currency front, the U.S. dollar is trading at 157.78 yen compared to the 157.80 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is trading at $1.0681 compared to yesterday’s $1.0666.

Asia

Asian stock markets moved mostly lower in thin holiday trading on Wednesday following the broadly negative cues from global markets overnight, with most of the markets in the region closed for a labor day holiday.

Traders also remained cautious ahead of the Fed’s monetary policy decision later in the day. Asian markets closed mostly higher on Tuesday.

Japanese stocks closed modestly lower on Wednesday, giving up some of the gains in the previous two sessions. The Nikkei 225 fell 131.61 points or 0.3 percent to 38,274.05, with losses across most sectors.

Australian shares showed a more significant move to the downside, with the S&P/ASX 200 Index falling below the 7,600 level. The index ended the day down 94.20 points or 1.2 percent at 7,569.90.

In economic news, the manufacturing sector in Australia continued to contract in April, albeit at a slower pace, the latest survey from Judo Bank revealed on Wednesday with a manufacturing PMI score of 49.6. That’s up from 47.3 in March, although it remains beneath the boom-or-bust line of 50 that separates expansion from contraction.

Europe

With most major European markets closed on the day, U.K. stocks are little changed. The U.K.’s FTSE 100 Index is currently up by less than a tenth of a percent.

On the economic front, U.K. manufacturing activity slid into contraction at the start of the second quarter as improvement in output and new orders were short-lived amid uncertain market conditions, client destocking and supply chain disruptions.

The S&P Global final manufacturing Purchasing Managers’ Index fell to 49.1 in April from a 20-month high of 50.3 in March, survey results showed on Wednesday. The score was above the flash estimate of 48.7.

Four out of the five components of the PMI contracted in April. Only supplier delivery times bucked the negative trend.

Meanwhile, data published by the Nationwide Building Society revealed U.K. house prices unexpectedly declined in April, reflecting affordability pressures amid rising longer term interest rates.

House prices posted a monthly decline of 0.4 percent after easing 0.2 percent in March. Prices were expected to climb 0.1 percent.

On a yearly basis, house price growth eased more-than-expected to 0.6 percent from 1.6 percent in March. Prices were forecast to rise 1.2 percent.

U.S. Economic Reports

Private sector employment in the U.S. increased by more than expected in the month of April, according to a report released by payroll processor ADP on Wednesday.

ADP said private sector employment shot up by 192,000 jobs in April after jumping by an upwardly revised 208,000 jobs in March.

Economists had expected private sector employment to climb by 175,000 jobs compared to the addition of 184,000 jobs originally reported for the previous month.

“Hiring was broad-based in April,” said ADP chief economist Nela Richardson. “Only the information sector – telecommunications, media, and information technology – showed weakness, posting job losses and the smallest pace of pay gains since August 2021.”

At 10 am ET, the Institute for Supply Management is scheduled to release its report on manufacturing activity in the month of April. The ISM’s manufacturing PMI is expected to edge down to 50.0 in April from 50.3 in March.

The Commerce Department is also due to release its report on construction spending in the month of March at 10 am ET. Construction spending is expected to rise by 0.3 percent in March after falling by 0.3 percent in February.

Also at 10 am ET, the Labor Department is scheduled to release its report on job openings in the month of March. Job openings are expected to decrease to 8.690 million in March from 8.756 million in February.

The Energy Information Administration is scheduled to release its report on oil inventories in the week ended April 26th at 10:30 am ET.

Crude oil inventories are expected to decrease by 2.3 million barrels after tumbling by 6.4 million barrels in the previous week.

The Federal Reserve is due to announce its latest monetary policy decision at 2 pm ET, followed by Fed Chair Jerome Powell’s post-meeting press conference at 2:30 pm ET.

Stocks In Focus

Shares of CVS Health (CVS) are moving sharply lower in pre-market trading after the drugstore chain and pharmacy benefit manager reported weaker than expected first quarter results and cut its full-year profit outlook.

Coffee giant Starbucks (SBUX) is also seeing substantial pre-market weakness after reporting fiscal second quarter results that missed analyst estimates and slashing its full-year guidance.

On the other hand, shares of Pinterest (PINS) are soaring in pre-market trading after the social media giant reported better than expected first quarter results and provided an upbeat second quarter revenue forecast.

Drug giant Pfizer (PFE) may also move to the upside after reporting first quarter earnings that beat expectations and raising its full-year earnings guidance.