Dow down over 200 points as investors digest mixed economic data ahead of Powell speech

What’s driving markets

U.S. equities were closing out the month on a mildly positive note as traders eschewed big bets ahead of a speech by Federal Reserve Chairman Jay Powell and a raft of economic data in the next few days.

Amid signs of a weakening economy, traders want to see Powell deliver a clear message that the Fed will downshift their pace of monetary tightening, said Edward Moya, senior market analyst at Oanda, in a note.

“No one wants to put on a major position before Powell and they probably won’t if he sticks to his script that the pace of hikes will slow but they still have more to do to bring inflation down,” Moya said, in emailed comments.

Some economists see the risk of a hawkish tone in Powell’s comments today which may reinforce his November FOMC message that policy interest rates may need to rise to higher levels and that a slowdown to a 50bp hike in the Fed funds rate in December is not a dovish pivot. 

“Powell has recently sounded more hawkish than the median Fed official,” Andrew Hollenhorst, chief U.S. economist at Citi, wrote in a Wednesday note. “More dovish officials like Vice-Chair Brainard and Chicago Fed President Evans have discussed the risks of both over and under tightening whereas Powell has more definitely stated that under tightening is now the dominant risk.”

Data released Wednesday morning showed job openings in the U.S. fell to 10.3 million in October in another sign the labor market is cooling off as the economy softens, but the cooling may not be enough to satisfy the Fed. Job listings declined from 10.7 million in September, the Labor Department said.

ADP on Wednesday said the private sector added 127,000 jobs in November. Economists surveyed by The Wall Street Journal, on average, had looked for a rise of 190,000. In other data, third-quarter gross domestic product figures were revised to show a 2.9% annual rise versus an initial estimate of 2.6%.

The Fed’s Beige Book report is due at 2 p.m. Eastern.

“A speech by Federal Reserve Chair Powell later today is expected to reiterate the central bank’s determination to focus on inflation as its core objective, regardless of the potential ramifications,” said Richard Hunter, head of markets at Interactive Investors,

“Although such comments should be of little surprise, inevitably those searching for confirmation that the Fed will slow its round of rate hikes are likely to be disappointed once more,” Hunter added. Powell is due to speak at the Brookings Institution at 1.30 p.m. Eastern.

The S&P 500 index, the U.S. equity benchmark, has lost 17% this year after the Fed swiftly raised borrowing costs from effectively zero in March to a range of 3.75% to 4% by November.

Read: A Fed rate-hike cycle never hit stocks this hard before. Here’s what’s different this time.

One of the Fed’s most closely watched inflation gauges, the personal-consumption expenditures index, will be published on Thursday, followed on Friday by the monthly employment report from the U.S. Labor Department.

Ipek Ozkardeskaya, senior analyst at Swissquote Bank, argued that whatever the upcoming raft of data showed it may be difficult for equities to gain much in the short term.

“Strong economic data, like strong growth and strong jobs means that the Fed will continue its aggressive tightening and could aim for relatively higher terminal rates. That’s bad for stock valuations. And soft inflation figures and softening spending are good for the Fed expectations, but they will boost recession odds, which is obviously not good for the stock valuations either,” she said in a morning bulletin.

“As a result, we have certainly hit a top in the latest S&P 500 rally, and the 200-day moving average, which stands around 4050, which also coincides with the year-to-date descending channel top, should mark the end of the latest bear rally, with the expectation of a further fall to potentially around the 3400 mark. I’m sorry,” Ozkardeskaya concluded.

Elsewhere overnight, markets in China continued to rebound after the protests against the country’s zero-COVID triggered a sharp sell-off Monday. Hong Kong’s Hang Seng Index
HSI,
+2.16%
 jumped 2.2% on Wednesday, booking a monthly gain of over 25%. It is the largest one month percentage gain since 1998, according to Dow Jones Market Data.

Despite fresh news of contracting China manufacturing, concerns about COVID restrictions in that country impacting the global economy appeared to have died down for now, allowing investors to refocus on the topic that has been driving stocks for much of the year: the Fed’s monetary policy trajectory.

Companies in focus

• Shares of Dow component Walt Disney Co.
  DIS,
  -0.36%
  fell 0.5% after the entertainment conglomerate said it expects its newly reappointed CEO Robert Iger to implement organizational and operating changes to address the board’s goal of boosting profitability, and that the moves could result in impairment charges.

• Crowdstrike Holdings Inc.
  CRWD,
  -19.63%
  fell 19.8% after the cybersecurity company said new subscriptions came in below expectations amid macro headwinds and longer customer buying cycles.

• Hormel Foods Corp.
  HRL,
  -4.67%
  shares dropped 4.8%, after the meat and food products company topped fiscal fourth-quarter profit forecasts but fell short on sales and provided a downbeat outlook.

• Biogen Inc. stock
  BIIB,
  +3.90%
   rose 3.6%, after a new study was unveiled late Tuesday that showed the company’s experimental Alzheimer’s drug being developed with Japan’s Eisai moderately reduced cognitive decline after a year and a half.

• Hewlett Packard Enterprise Co.’s
  HPE,
  +4.37%
  stock was up 4% after the company reported quarterly results in line with analysts’ estimates and offered strong revenue guidance.

• Some of the most popular Chinese stocks continue to rally on Wednesday. Shares of Alibaba Group
  BABA,
  +8.81%
  climbed 8.5%, while the search giant Baidu Inc.
  BIDU,
  +7.61%
  soared as much as 6.6%, and streaming video platform Bilibili Inc.
  BILI,
  +9.68%
  surged as much as 8.2%. 

— Jamie Chisholm contributed to this article.