By Devik Jain and Bansari Mayur Kamdar
(Reuters) – The S&P 500 and the Dow rose on Tuesday, as investors picked up shares of financials and beaten-down megacap companies, while being cautious about the Federal Reserve’s ability to tame inflation without impeding growth.
Nine of the 11 major S&P sectors rose, with energy and financials up 2.6% and 1.7%, respectively. The S&P 500 banks index gained 2.4%, with Bank of America climbing 3.5%.
The U.S. central bank kicks off its two-day policy meeting on Tuesday. Traders see a 93.9% chance of a 50 basis points hike on Wednesday that would mark the largest rate hike by the Fed since May 2000. [IRPR]
The spotlight is squarely on Fed Chair Jerome Powell’s press conference on Wednesday for comments on the future path of interest rates and balance-sheet reduction.
“The markets remain turbulent as investors try to get their heads around the combination of rising inflation, interest rates and probably slowing growth,” said David Swank, chief investment officer at Hood River Capital Management.
“For the first time in many people’s careers the Fed’s hands are tied by inflation, so it’s not clear that it can ride to the rescue if something goes wrong in the economy.”
Pointing to historic data, Wells Fargo Investment Institute said in its note that rapid interest rate increases could eventually reinforce inflation’s negative effect on economic growth and potentially and significantly slow the U.S. economy by 2023. It expects U.S. GDP to grow 0.4% by the end of 2023.
Uncertainty around Fed’s policy move, mixed earnings from some Big Tech companies, the war in Ukraine and pandemic-related lockdowns in China hammered Wall Street in April.
The Nasdaq Composite slumped nearly 13.3% last month, its worst monthly performance since October 2008 as richly valued high-growth stocks came under pressure from rising rates.
At 12:11 p.m. ET, the tech-heavy index was down 13.09 points, or 0.10%, at 12,522.93, as a drop in shares of Microsoft and Amazon.com weighed.
On the other hand, the Dow Jones Industrial Average was up 91.87 points, or 0.28%, at 33,153.37 and the S&P 500 was up 18.73 points, or 0.45%, at 4,174.11.
The two indexes were boosted by Apple Inc, Tesla Inc and Alphabet Inc, which rose between 0.4% and 0.9%.
Estee Lauder Cos Inc slumped 5.3% after the cosmetics maker cut its full-year profit forecast due to fresh COVID-19 restrictions in China and the Russia-Ukraine crisis.
Hilton Worldwide Holdings Inc slid 3.3% after the hotel operator forecast a bleak full-year profit.
However, Western Digital Corp jumped 14.4% after activist investor Elliott Investment Management urged the company to separate its Flash business and offered to invest $1 billion to facilitate a sale or a spin-off of the business.
Advancing issues outnumbered decliners by a 2.14-to-1 ratio on the NYSE and by a 1.25-to-1 ratio on the Nasdaq.
The S&P index recorded two new 52-week highs and 32 new lows, while the Nasdaq recorded 17 new highs and 135 new lows.
(Reporting by Devik Jain in Bengaluru; Editing by Sriraj Kalluvila, Shounak Dasgupta and Anil D’Silva)