July 5, 2022

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U.S. stocks struggle to hold modest gains as Powell promises to fight inflation but sees strong economy

U.S. stock indexes struggle to hold gains Wednesday after Federal Reserve Chairman Jerome Powell reiterated his commitment to combat inflation, while also suggesting the economy was strong enough to withstand higher interest rates.

How are stock indexes trading?
  • The Dow Jones Industrial Average
    DJIA,
    +0.03%
    gained 16 points, or 0.1% to trade around 30,547.

  • The S&P 500
    SPX,
    +0.10%
    rose 5 points, or 0.1% to around 3,770

  • The Nasdaq Composite Index
    COMP,
    +0.18%
    was up 26 points, or 0.3% to around 11,100

Following a long holiday weekend, the Dow Jones Industrial Average 
DJIA,
+0.03%
rallied 641.47 points, or 2.2%, to finish at 30,530.25 on Tuesday. The S&P 500 
SPX,
+0.10%
rose 2.5% to 3,764.79, and the Nasdaq Composite 
COMP,
+0.18%
climbed 2.5%, to finish at 11,069.30.

Those gains followed the worst week for the S&P 500 in two years, with the Dow and Nasdaq also suffering sharp losses.

What’s driving the market?

Investors were digesting comments from Fed Chairman Powell on Wednesday who vowed to bring down inflation through additional rate hikes, while testifying on Capitol Hill.

“The American economy is very strong and well positioned to handle tighter monetary policy,” Powell said, in remarks prepared for delivery to a Senate Banking Committee hearing.

See: Powell says U.S. economy can handle the additional rate hikes that are coming

“Nothing really new or groundbreaking was communicated in his [Powell’s] statements and his testimony. And that is an incremental positive in that it just removes the overhanging concern that he’s growing increasingly hawkish with every meeting, which is not really rational,” Keith Buchanan, senior portfolio manager at GLOBALT Investments, said in an interview.

“Even him saying the same thing as he said last week, instead of saying things that might be even more draconian, is looked at as positive. It just shows where the market has gone over the past two weeks. Just historical selling pressure, and fear of a recession,” Buchanan said.

The Federal Reserve should make sure that its interest rate increases do not push Americans into the unemployment lines, said Sen. Elizabeth Warren, the Democrat from Massachusetts, in the hearing. “Inflation is like an illness, and medicine needs to be tailored to the specific problem. Otherwise you could make things a lot worse,” Warren told Powell. “You could actually tip the economy into a recession,” she said.

Other Fed speakers are also lined up for Wednesday, including Chicago Fed President Charles Evans at 12:50 p.m. Eastern and Harker and Richmond Fed President Tom Barkin who will jointly appear on a panel discussion at 1:30 p.m. Eastern.

While stocks were mostly lower, money was flowing into traditional havens such as bonds. The yield on the 10-year Treasury note
TMUBMUSD10Y,
3.160%
fell 14 basis points to 3.16%, a day after its biggest jump in seven days. 

U.S. crude oil prices
CL.1,
-2.88%
dropped 3.3% to $105.95 a barrel, with Brent
BRN00,
-2.62%
down close to that at $111.1 a barrel, with both more than giving back Tuesday’s rise.

In addition to demand worries fueled by recession concerns, the White House on Wednesday said it is calling on Congress to suspend the federal gasoline tax for three months while also asking states to provide similar relief.

The federal government charges an 18 cent tax per gallon of gasoline and a 24 cent tax per gallon of diesel. A “gasoline tax holiday, while supporting consumers, would support demand, thereby prolong the period of tightness,” said Ole Hansen, head of commodity strategy at Saxo Bank, in a note to clients.

Which companies are in focus?
  • Chef’s Warehouse Inc.
    CHEF,
    +3.28%
      shares rose 4% Wednesday after it raised its full-year guidance. The North American specialty foods provider expects sales in the range of $2.325 billion to $2.425 billion, up from a range of $2.13 billion to $2.23 billion previously.

  • Shares of Athira Pharma Inc. 
    ATHA,
    -64.23%
    plunged 64% Wednesday after the company said an exploratory Phase 2 study assessing its experimental treatment for patients with mild-to-moderate Alzheimer’s disease did not meet the primary endpoint. 

How are other assets trading?
  • The ICE U.S. Dollar Index 
    DXY,
    -0.31%,
     a measure of the currency against a basket of six major rivals, went down 0.4%.

  • Gold futures 
    GC00,
    +0.05%
     went up 0.4% to $1,841.80 an ounce

  • The Stoxx Europe 600 
    SXXP,
    -0.70%
     fell 0.7% while London’s FTSE 100 
    UKX,
    -0.88%
     declined 0.9%.

  • The Shanghai Composite 
    SHCOMP,
    -1.20%
    fell 1.2%, while the Hang Seng Index HSI, -2.56% 
    HSI,
    -2.56%
    dropped 2.6% and Japan’s Nikkei 225 
    NIK,
    -0.37%
    slipped 0.4%.