S&P 500, Dow Stage Another Turnaround as Fed Meeting Gets Underway

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S&P 500, Dow Stage Another Turnaround as Fed Meeting Gets Underway
Credit: © Reuters.

By Yasin Ebrahim

Investing.com – The Dow turned positive and the S&P 500 pared some losses Tuesday, as energy and financials helped ease selling in tech ahead of the Federal Reserve’s monetary policy update due Wednesday.  

The S&P 500 fell 0.6%, but had been down more than 1% intraday. The Dow Jones Industrial Average gained 0.1%, or 19 points, easing an 800 point decline. The Nasdaq fell 1%.

The Federal Reserve kicks off its two-day meeting Tuesday. While the Fed is expected to keep its benchmark rate on hold, investors are waiting with bated breath to discover whether the recent pricing in of a more aggressive tightening of monetary policy is warranted.

Investors will be watching "If Fed chairman Jerome Powell continues to address the risk of inflation as heightened and any sort of communication about ending the taper early," John Luke Tyner, Portfolio Manager at Aptus Capital Advisors said in an interview with Investing.com on Tuesday. If the Fed hints "at any plan of how they'll use the balance sheet to reduce accommodation that is going to be huge."

In anticipation of a hawkish tone on policy from the Fed, U.S. bonds yields were on the rise, with U.S. 10-year yield briefly flirting with 1.8%, boosting rate-sensitive sectors like banks.

Zions (NASDAQ: ZION ), Discover Financial Services (NYSE: DFS ) and American Express (NYSE: AXP ) led the move higher in financials, with latter receiving an added boost after delivering quarterly results that beat on both the top and bottom lines.

American Express reported better-than-expected quarterly earnings of $2.18 per share on $12.15 billion in revenue, well above Wall Street estimates for $1.87 and $11.5 billion, respectively.

Energy, however, was the standout performer rising more than 3%, underpinned by fears about potential supply disruptions as geopolitical tensions in Eastern Europe and the Middle East continue to rise.

The gains in the cyclical stocks like energy and financials contrasted with losses in growth sectors like tech, which could continue its trend lower amid a rising interest rate environment.

But there could be respite ahead for higher quality tech names boasting strong earnings and robust balance sheets.

“Rising interest rates might impact a company that doesn't have earnings, but for companies like Microsoft or like Apple and some of the really high-quality growth names, one and a half percent and 2% on the 10-year yield doesn't really matter,” said Tyner.

Microsoft (NASDAQ: MSFT ) was down less than 1% ahead of its quarterly results due after the closing bell. Its cloud business, Azure, is expected to have bolstered results in fourth quarter.

"We expect another strong result [...] led by ongoing Azure momentum and M365 tailwinds,” Deutsche Bank said in a note.

International Business Machines (NYSE: IBM ) rose nearly 6% after delivering a beat on both the top and bottom lines, though some of the growth driven by sales to Kyndryl.

In other earnings news, General Electric (NYSE: GE ) fell more than 4% after reporting revenue that missed Wall Street estimates as supply chain disruptions weighed on performance.

Johnson & Johnson (NYSE: JNJ ), meanwhile, reported mixed quarterly results as revenue fell short of analysts’ estimates, but the company projected its covid vaccine would generate $3 billion to $3.5 billion in sales in 2022. Its shares were up more than 3%.

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