US stocks rise ahead of Fed decision and after Putin steps up war footing

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By Frances Yue and Jamie Chisholm

U.S. stock indexes rose on Wednesday, ahead of another sharp interest rate hike expected by the Federal Reserve and after Russian President Vladimir Putin escalated his war on Ukraine.

How Stock Indices Trade

On Tuesday, the Dow Jones Industrial Average fell 313 points, or 1.01%, to 30706, the S&P 500 fell 44 points, or 1.13%, to 3856, and the Nasdaq Composite fell 110 points, or 0.95%, to 11425.

What drives the markets?

US stocks traded higher despite traders expressing nervousness over tighter monetary policy and heightened geopolitical tensions in Europe.

“It is proving very difficult for equity markets to move forward this week with large official rate hikes in prospect,” wrote Ian Williams, strategist at Peel Hunt.

The Federal Reserve is expected to raise its key interest rate by 75 basis points to a target rate of 3.0% to 3.25% when it makes its decision at 2 p.m. ET. The central bank quickly raised borrowing costs from near zero earlier in the year as it struggles to tackle inflation which is currently at 8.3%, near multi-decade highs.

“All eyes will be on the Federal Reserve’s latest inflation-fighting measure today, as spiraling prices continue to cause financial hardship for consumers and businesses… There are fears inflation will becomes dangerously entrenched in the economy, threatening financial stability,” wrote Susannah Streeter, senior investment and market analyst at Hargreaves Lansdown.

The sharp rise in interest rates in recent months – and the prospect of more to come – has triggered a massive bond sell-off and pushed benchmark public yields to 11-year highs, a move that weighs additional pressure on equities, partly because it makes fixed income assets relatively more attractive. The S&P 500 index is down 18.6% so far in 2022.

The Fed’s expected move comes after Sweden’s central bank announced a more hawkish-than-expected rate hike of 100 basis points on Tuesday and ahead of an expected rate hike from the Bank of England on Thursday.

“Central banks are showing greater resolve to fight inflation and are increasingly willing to sacrifice growth to get there,” said Nathan Sheets, chief global economist at Citi.

Jim Cramer argued in a Tweet that if Fed Chairman Jay Powell only maintained his previously hawkish tone, the market could rally.

Yet suppressing sentiment on Wednesday was news that Russian President Vladimir Putin had called for a partial military mobilization of the country to continue his attack on Ukraine. The announcement, which included threats against the West, raised fears of a further escalation in the conflict.

Energy prices fell, with U.S. WTI crude futures down 0.7% at $83.83 a barrel and ICE Dutch TTF natural gas futures, the continent’s benchmark , down 1.16% to 192 euros per megawatt hour. The euro fell 0.6% to $0.9906, pushing the dollar index back near its 20-year high.

In U.S. economic data, sales of existing homes in the country fell 0.4% in August to 4.8 million, the lowest level since May 2020, the National Association of Realtors said Wednesday.

-Frances Yue

Companies in the spotlight

 

(END) Dow Jones Newswire

09-21-22 1024ET

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