U.S. stocks mostly dip ahead of the Fed’s interest-rate decision on fears of more rate hikes after July

How are stocks trading

• The Dow Jones Industrial Average
  DJIA,
  +0.01%
  gained 11 points, leaving it nearly flat at 35,449

• The S&P 500
  SPX,
  -0.25%
  dipped 12 points, or 0.3% to about 4,555

• The Nasdaq Composite
  COMP,
  -0.44%
  dropped 71 points, or 0.5% to about 14,072

On Tuesday, the Dow Jones Industrial Average rose 27 points, or 0.08%, to 35, 438, the S&P 500 increased 13 points, or 0.28%, to 4,567, and the Nasdaq Composite gained 86 points, or 0.61%, to 14,145.

What’s driving markets

The S&P 500 and the tech-heavy Nasdaq Composite fell slightly on Wednesday after a mixed bag of Big Tech earnings dragged the market lower while the Dow Jones Industrial Average edged higher in midday trading, attempting to log its 13th straight gain.

If the blue-chip gauge finishes higher, it would be the longest winning run since 1987, according to Dow Jones Market Data.

Stock-market traders eschewed bold bets ahead of the Federal Reserve’s monetary policy decision due at 2 p.m. Eastern. The Fed is expected to raise its policy interest rates by another 25 basis points to a range of 5.25% to 5.5% after a brief pause in June.

However, markets are uncertain whether a quarter-percentage-point boost would mark the end of the Fed’s most aggressive monetary tightening cycle in four decades, or more work is still needed on interest rates to get inflation back down to 2%.

Consequently, it is the Fed’s accompanying statement due out at 2:00 p.m. and comments from Chair Jerome Powell at his press conference, starting at 2:30 p.m. Eastern time, that will carry the greater heft.

MarketWatch live coverage: Fed meeting: Dow winning streak in jeopardy as investors await rate decision

“A +25bp hike is largely expected but that is not what will move markets. It is the qualitative views around the Fed’s sense of progress on the inflation war that matters,” wrote Tom Lee, head of research at Fundstrat, in a note to clients.

Lee added that given the Fed’s likely comments and how the market is set up, he thought the probabilities favor an S&P 500 index rally post-FOMC of greater than 1%.

“While the CPI has cooled off to 3% on July 12th, we are still below the Fed’s target level of 2%. This leads us to believe that the FOMC will continue to target optionality at each upcoming meeting based on where economic data prints in the coming weeks and months,” said Victor Masotti, director of repo trading at Clear Street. 

Additionally, Powell will be giving remarks at next month’s Jackson Hole Economic Symposium in Wyoming, where the market will also be seeking clarity on rate moves for the September and November FOMC meetings.

Still, Lauren Goodwin, senior director of multi-asset solutions at New York Life Investments, said the market may be underpricing  the risk of another rate hike in September.

“Inflation, and especially ex-shelter services inflation, is still high. The Fed has been clear that it favors getting inflation under control even at the expense of an economic slowdown or recession,” Goodwin wrote in a Wednesday note.

Futures markets are pricing in a 35.7% chance of an additional hike this year after Wednesday’s meeting while also pricing in the first full rate cut for July 2024, according to CME FedWatch Tool.

See: Here’s how stocks, bonds and the dollar have traded on every Fed Day over the past year

Meanwhile, also contributing to the market’s relative stasis on Wednesday were counteracting reactions on the earnings front.

Shares in tech behemoths Microsoft
MSFT,
-4.49%
and Alphabet
GOOG,
+5.60%
went in opposite directions following their results and guidance late on Tuesday.

Traders are in the middle of a week in which about 170 companies from the S&P 500, representing roughly 40% of the benchmark’s market capitalization, will report their earnings.

The results of AT&T
T,
+0.51%,
Boeing
BA,
+6.69%,
Coca-Cola
KO,
+0.98%
and General Dynamics
GD,
+3.15%
were also published early Wednesday, while Meta Platforms
META,
+0.87%,
Lam Research
LRCX,
-1.62%
and eBay
EBAY,
+0.00%
will feature after the close.

In U.S. economic data, U.S. new home sales fell 2.5% to an annual rate of 697,000 in June, from a revised 715,000 in the prior month, the Commerce Department reported Wednesday. 

Companies in focus

• Alphabet Inc.
  GOOG,
  +5.60%

  GOOGL,
  +5.78%
  stock rose 5.7% Wednesday after the Google parent topped Wall Street profit and sales estimates on strong advertising sales.

• Microsoft Corp.‘s
  MSFT,
  -4.49%
  was down 4.6% after management said the process of generating revenue from AI use cases would be gradual.

• Snap Inc.
  SNAP,
  -18.82%
  tanked 18.8% after the social-media company forecast worse-than-expected sales for its current quarter.

• Boeing Co. 
  BA,
  +6.69%
  jumped 6.7% toward an 18-month high after the aerospace and defense giant reported big second-quarter revenue and free cash flow beats, amid strength in its commercial airplanes business.

• Texas Instruments Inc.
  TXN,
  -5.71%
  dropped 5.5% after the chip maker’s forecast came in lower than expected as it continues building out capacity amid rising inventory.

• Wells Fargo & Co.
  WFC,
  +1.72%
   rose 1.9% after the bank said its board approved a new share buyback program of up to $30 billion and a dividend increase.

• PacWest Bancorp
  PACW,
  +25.16%
  rocketed 27% as the Banc of California
  BANC,
  +0.42%
  confirmed plans to buy the troubled regional lender.

undefinedhisholm contributed