Stocks faltered on Wednesday as Wall Street struggled to snap a three-day losing streak and investors continued to digest deflationary comments from Federal Reserve officials.
The Dow Jones Industrial Average ticked up 2 points, spinning on the flat line. The S&P 500 gained 0.1% and the Nasdaq Composite gained 0.2%.
The moves put the Dow and S&P about 7% and 10%, respectively, above their mid-June lows. The Nasdaq is now more than 1[ads1]2% above summer lows.
What began as a strong month for the three major averages is about to end on a weaker note. The Dow and S&P 500 are currently closing August approx. 3% lower. The Nasdaq is set to end down around 4%.
Investors had been debating for weeks whether the economy is in a recession or headed for one, and many believed an economic slowdown would give the Fed reason to ease its rate hike plan. However, Powell reiterated in his Jackson Hole speech on Friday that the central bank is committed to getting inflation under control and will continue to raise interest rates even in a recessionary environment.
“Markets were anticipating limited rate hikes and rapid rate cuts,” said Brad McMillan, chief investment officer of Commonwealth Financial Network. “However, the speech was clear that the increases will be larger, and the cuts more delayed than anyone expected.”
Shares have sold off sharply since Friday. On top of Powell’s comments, Cleveland Fed President Loretta Mester said Wednesday that she sees benchmark interest rates rising above 4% early next year. On Tuesday, New York Fed President John Williams called for “some restrictive policy to slow demand.”
As dire as the final route may be for investors, there may be some positive signs emerging.
“This volatility is really healthy and constructive,” Jeff Kilburg, chief investment officer at Sanctuary Wealth, told CNBC. “It doesn’t feel good, and the speed that the Fed has injected into this risk-reduction process has taken the breath away from many investors, but… There are a lot of signs that are more optimistic than negative” — such as rising Treasury yields, he said.
“For the market to go from 3,600 to 4,300 in 19 trading sessions, that’s not sustainable,” he added. “Seeing the market bounce back and fill volume for the S&P 500 around 4,000 is really constructive and allows us to have a foundation that takes another leg higher against the backdrop of a better-than-expected earnings season and consumer sentiment slowly increasing.”