U.S. Stocks Post Mild Gains As Traders Mull Fed Path: Markets Wrap

(Bloomberg) -- Stock traders remained hesitant to make any huge bets ahead of Jerome Powell’s speech on Friday, which may provide clues on how hawkish the Federal Reserve will be in the face of mounting economic challenges.

After wandering aimlessly earlier Wednesday, the S&P 500 posted a small gain in another slow session. A gauge of megacaps like Apple Inc. and Tesla Inc. climbed, with Elon Musk’s electric-vehicle maker getting ready to trade on a split-adjusted basis Aug. 25. Big tech outperformed after being hardly hit during the equity rout earlier in the week as 10-year US yields topped 3% on renewed Fed jitters.

Those fears haven’t really gone anywhere despite the controversial dovish-pivot narrative cited by some as one of the reasons for the short-covering bounce from June lows. In fact, just before the prestigious Jackson Hole event that will be attended by Powell and global policy makers, traders had to digest more hawkish talk. Fed Bank of Minneapolis President Neel Kashkari said late Tuesday it’s “very clear” that officials need to tighten and bring inflation back under control.

“We don’t expect any shock-and-awe, Volcker-style, hyper-aggressive articulation by Powell or anyone else for that matter,” said Troy Gayeski, chief market strategist at FS Investments, referring to former Fed Chair Paul Volcker who tipped the economy into recession to conquer inflation in the 1980s. “However, it’s very clear that the rally since the June bottom works directly against what the Fed has been trying to achieve, which is tighter financial conditions to slow economic growth and slow inflation. So they have to push back and they’ve been doing that clearly.”

Central banks that hike borrowing costs too aggressively to tame supply-driven inflation risk exacerbating price gains, according to Nobel laureate economist Joseph Stiglitz. Meantime, Guggenheim Partners Chief Investment Officer Scott Minerd is warning investors away from junk bonds and stocks because slowing economic growth and higher interest rates likely will produce deeper losses in risk markets.

Read: Goldman Says Hedge Funds Back Betting Big on Megacap Tech Stocks

Economic reports have been mixed at best, underlining the delicate task policy makers face in bringing down high inflation without sparking a recession. Data Wednesday showed US pending home sales fell to the lowest since the start of the pandemic. While orders placed with US factories for core capital goods beat forecasts, the picture might change in the coming months amid higher borrowing costs and uncertainty about the growth outlook.

In corporate news, Peloton Interactive Inc. soared after saying it will sell bikes and certain accessories on Amazon.com Inc. in the US, breaking with a longtime practice of exclusively selling products via its own website and retail stores. Bed Bath & Beyond Inc. jumped after a report said that the home goods retailer has selected a lender to provide financing as it seeks to boost liquidity.

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What to watch this week:

• US GDP, initial jobless claims, Thursday
• Kansas City Fed hosts its annual economic policy symposium in Jackson Hole, Wyoming, Thursday
• ECB’s July minutes, Thursday
• Fed Chair Powell speaks at Jackson Hole, Friday
• US personal income, PCE deflator, University of Michigan consumer sentiment, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 rose 0.2% as of 2:55 p.m. New York time
• The Nasdaq 100 rose 0.3%
• The Dow Jones Industrial Average was little changed
• The MSCI World index was little changed

Currencies

• The Bloomberg Dollar Spot Index rose 0.1%
• The euro was little changed at $0.9961
• The British pound fell 0.4% to $1.1787
• The Japanese yen fell 0.2% to 137.07 per dollar

Bonds

• The yield on 10-year Treasuries advanced six basis points to 3.10%
• Germany’s 10-year yield advanced five basis points to 1.37%
• Britain’s 10-year yield advanced 12 basis points to 2.70%

Commodities

• West Texas Intermediate crude rose 1.1% to $94.80 a barrel
• Gold futures rose 0.1% to $1,763.10 an ounce

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