Indices edge up as markets remain under Fed watch
NEW YORK — Stocks made modest gains after a choppy day of trading on Tuesday as Wall Street waits to hear how aggressively the Federal Reserve will raise interest rates at its final policy meeting on Wednesday.
The S&P 500 ended up 0.5% after briefly slipping into the red earlier in the day. The Dow Jones Industrial Average rose 0.5% and the Nasdaq 0.2%.
Banks and other financial stocks helped lift the market. Energy stocks also made strong gains following encouraging quarterly earnings reports from several oil and gas companies. Retailers and other businesses that rely on direct consumer spending lagged the market as a whole.
Bond returns were mixed. The 10-year Treasury yield fell to 2.97% from 2.99% on Monday evening. Treasury yields have generally risen throughout the year as investors brace for higher interest rates, which will make borrowing more expensive.
The Fed is expected to raise its benchmark rate by twice the usual amount this week as it steps up its fight against inflation, which is at its highest level in four decades.
“Right now, the market wants to hear that the Fed is going to be ahead of inflation,” said Megan Horneman, chief investment officer at Verdence Capital Advisors. “What would scare the market off is if there was a hint of sweetness in their tone.”
The S&P 500 rose 20.10 points to 4,175.48. The Dow gained 67.29 points to 33,128.79. The Nasdaq gained 27.74 points to 12,563.76.
Tech stocks held on to slight gains after a mixed morning. Many companies in the sector have expensive stock values and therefore have more strength to push the major indexes up or down. The apple rose 1%.
Stocks of small companies outperformed the broader market. The Russell 2000 added 15.94 points, or 0.9%, to 1,898.86.
The market’s moderate gains follow a late-day rally on Monday that gave indices a positive start to May after a brutal April.
“The rally in equities yesterday and today is just positioning itself and preparing for tomorrow’s Fed meeting,” said Zach Hill, head of portfolio management at Horizon Investments.
Wall Street’s primary focus over the next few days is the Fed. The central bank met on Tuesday and will issue a statement today. Investors expect it to raise its benchmark rate by twice the usual amount this week as it steps up its fight against inflation, which is at its highest level in four decades. It has already raised its key overnight rate once, the first such increase since 2018, and Wall Street expects several big increases in the coming months.
The Fed’s aggressive move to raise interest rates comes as rising inflation puts increased pressure on businesses and consumers. Higher costs for energy and other raw materials have prompted many companies to raise prices and issue cautious forecasts to their investors. Wall Street and economists worry that rising prices for everything from food to gasoline and clothing will cause consumer spending to slow and dampen economic growth.
Investors are getting updates on the labor market, which was slow to recover from the pandemic initially but has strengthened. The Bureau of Labor Statistics reported Tuesday that employers posted a record 11.5 million job openings in March, meaning the United States now has an all-time high of two job openings for each unemployed person.
On Friday, the Labor Department is expected to report that the economy generated an additional 396,000 new jobs in April, according to FactSet. It would mark an unprecedented 12th consecutive month where hiring reached around 400,000 or more.