S&P 500 dwindles on Yellen mixed messages, post-Fed dovish hike

Wall Street is mixed during Thursday’s session as traders brace for a possible pause in the Federal Reserve (Fed) tightening cycle. Money market futures expect three rate cuts by the Fed at the end of 2023 following Wednesday’s 25 bps hike. The S&P 500 losses 0.18%, at 3,932.41, while the Dow Jones followed suit, down 0.20%, at 31,966.32. The Nasdaq Composite is the outlier, boosted by mega-cap companies, up 0.36%, at 11,711.29.

Sentiment improved after US Treasury Secretary Janet Yellen rattled financial markets, expressing that the United States (US) government is not planning to introduce blanket insurance to all depositors on Wednesday. At the same time, the US Federal Reserve Chair Jerome Powell emphasized that the banking system is solid after the Fed took steps to provide liquidity to the markets.

Additionally, traders shrugged off a 25 bps rate hike by the Fed, even though Jerome Powell expressed that inflation is too high and the labor market remains tight. Regarding the latter, US Initial Jobless Claims for the last week rose less than estimates, reaching 191K, below forecasts of 201K. Therefore, further tightening is expected by the US central bank.

The Chicago Fed National Activity Index for February plunged to -0.19 vs. the prior’s month 0.23

US Treasury bond yields continue to fall, weighed by investors expecting an additional rate hike by the Fed and then a pause. The 2-year bond yield dropped to 3.833%, down nine bps, while the 10-year bond yield fell one bps to 3.428%.

Sector-wise, Communication Services, Technology, and Real Estate led the pack, each up 1.66 %, 1.38%, and 0.01%. Contrarily, Energy, Utilities, and Financials, finished with losses of 1.47%, 0.87%, and 0.51%m respectively.

In the FX space, the US Dollar Index (DXY), which tracks the buck’s value against a basket of six currencies, lost 0.01%, down at 102.528, after hitting a weekly low of 101.910.

S&P 500 Daily chart