Dow Pauses Near Records, Key Fed Decision Looms—and What Else Is Happening in the Stock Market Today

Fed Chair Jerome Powell’s press conference Wednesday afternoon will be closely watched.

Kevin Dietsch/Getty Images

The stock market was pausing near record highs Wednesday, as investors held their breath before a key announcement from the Federal Reserve.

Futures for the Dow Jones Industrial Average indicated an open 40 points lower, after the index climbed 138 points Tuesday to close at 36,052—its first finish above 36,000 points. Futures for the S&P 500 and Nasdaq signaled a similar start. All three indexes ended Tuesday at new all-time highs.

Today the spotlight is squarely on the Federal Open Market Committee (FOMC)—the Federal Reserve’s monetary-policy body. Its monthly meeting got under way Tuesday and will wrap up Wednesday with a statement from Fed Chair Jerome Powell.

It’s largely expected that the central bank will announce that it will start slowing, or tapering, its Covid-19 pandemic-era program of monthly asset purchases, which add liquidity to markets. The Fed has been buying $120 billion in bonds to keep their prices high and yields low since June 2020, when it settled into a steady pattern after more fervent bond-buying near the beginning of the pandemic.

Markets now largely expect that the Fed will begin slowing these purchases, which consist of Treasury securities and agency mortgage-backed securities, at a rate of about $15 billion a month, starting this month. If the central bank announces a faster pace, investors could react negatively, and it could put pressure on stocks.

“The Federal Reserve’s tapering could begin by year-end and we’ll likely hear more commentary during Wednesday’s meeting, but we don’t expect any tapering actions to disrupt the stock market’s rally. The Federal Reserve has been signaling its tapering plans for some time,” said Greg Marcus, a managing director at UBS Private Wealth Management.

“The stock market is remarkably resilient right now and has melted up despite supply-chain issues, inflation concerns, rising rates and a more hawkish Federal Reserve,” Marcus added.

That being said, inflationary pressures have only grown since the last meeting of the Fed—particularly in energy prices, with U.S. crude futures alone up around 15% since the FOMC last met.

“This has taken market expectations of future inflation up as well,” noted Jim Reid, a strategist at Deutsche Bank, and raised the prospect of interest rate hikes sooner rather than later. “Market pricing has also shifted significantly since the last meeting, with investors having gone from expecting less than one full hike by the December 2022 meeting to more than two,” he said.

Overseas, Hong Kong’s Hang Seng Index slipped 0.4% as investors in Asia tread water ahead of the FOMC meeting.

In commodity markets, oil prices have slipped back, with futures for international benchmark Brent crude down 1.5% to around $83.50 a barrel. U.S. futures for West Texas Intermediate crude similarly declined to around $82.50. 

The fall has come on the back of reports citing data indicating a buildup of oil and distillate stocks in the U.S., as the OPEC+ group of national producers—including Russia and Saudi Arabia—faces pressure to increase production.

Write to editors@barrons.com