Wall Street is scrambling for direction ahead of Powell’s testimony

March 7 (Reuters) – U.S. stock indexes were muted in cautious trading on Tuesday ahead of Federal Reserve Chairman Jerome Powell’s testimony to Congress that could shed more light on the central bank’s rate hike plans.

Powell will testify before the Senate Banking Committee at 10:00 a.m. ET (1500 GMT), with investors awaiting his comments on the Fed’s steps to bring inflation toward its 2% target.

Powell said at his latest press conference that a “disinflation process” had begun, while warning that the central bank’s fight against rising prices was not over.

Inflation data since his February 1 comments have shown that prices have not fallen as much as analysts expected, while the labor market has shown signs of resilience.

“We don’t really expect anything new to be shared, he (Powell) will probably remain hawkish. He’ll say we need to be higher longer and pretty much everything else we’ve heard so far,” said Sam Stovall, investment strategist at CFRA Research. New York.

The benchmark S&P 500 (.SPX) closed higher for a third straight session on Monday, as Treasury yields took a breather from their latest rally fueled by hopes that the Fed could keep interest rates higher than many had initially expected of the year.

The yield on two-year government bonds , which best reflects expectations for short-term interest rates, hit its highest since 2007 at 4.94% last week and has since hovered below that level.

Higher bond yields tend to weigh on equity valuations, especially those of growth and technology stocks, as higher yields reduce the value of future cash flows.

Recent economic data and comments from Fed policymakers have traders reassessing the interest rate path, with money market futures pegged at a 28% chance the central bank will raise rates by a bigger 50 basis points in March, according to CME Group’s Fedwatch tool.

Traders see Fed funds rates peaking at 5.46% by September, from today’s 4.67%.

“The Street is looking for any indication that the Fed will aim more toward 6%, and that would be a bigger concern … 5.5% is pretty much already weighed by the market,” Stovall said.

Investors are also awaiting data later this week that is expected to show that nonfarm payrolls rose by 200,000 in February, compared with the much stronger-than-expected 517,000 jobs reported in January.

Bank of America ( BAC.N ) Chief Executive Brian Moynihan said the U.S. economy would reach a technical recession in the third quarter of 2023.

At 9:41 a.m. ET, the Dow Jones Industrial Average (.DJI) was down 28.80 points, or 0.09%, at 33,402.64, the S&P 500 (.SPX) was down 1.44 points, or 0.04% , to 4,046.98, while the Nasdaq. The Composite (.IXIC) was up 23.27 points, or 0.20%, at 11,699.01.

Among individual stocks, Rivian Automotive ( RIVN.O ) fell 8.8% after the electric car maker unveiled plans to sell $1.3 billion worth of bonds.

Meta Platforms Inc ( META.O ) rose 2.0% after Bloomberg News reported the company will cut thousands of jobs as soon as this week in a new round of layoffs.

Dick’s Sporting Goods ( DKS.N ) rose 7.5% after the retailer forecast annual earnings above Wall Street estimates and more than doubled its quarterly dividend.

Declining issues outnumbered advancing ones by a ratio of 1.09 to 1 on the NYSE. Advances outnumbered decliners by a 1.05-to-1 ratio on the Nasdaq.

The S&P index recorded seven new 52-week highs and one new low, while the Nasdaq recorded 20 new highs and 30 new lows.

Reporting by Sruthi Shankar and Bansari Mayur Kamdar in Bengaluru Editing by Vinay Dwivedi

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