U.S. stocks poised for muted trade as investors watch for clues on outlook from Fed

MW U.S. stocks poised for muted trade as investors watch for clues on outlook from Fed

By Mark DeCambre

The stock market was likely to see lackluster trade Wednesday morning ahead of the release of the minutes of the Federal Reserve's March policy meeting which investors will dissect for any indication of the central bank's strategy if the economic rebound from the coronavirus pandemic runs too hot.

How are stock benchmarks trading?

On Tuesday , the Dow finished down 96.95 points, or 0.3%, to end at 33,430.24, the S&P 500 index fell 3.97 points, or 0.1%, to finish at 4,073.94, after carving out an intraday record at 4,081.37, while the Nasdaq Composite slipped 7.21 points, or less than 0.1%, to close at 13,698.38, ending a streak of three consecutive gains.

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What's driving the market?

Optimism about the outlook for the business climate is growing as more Americans get vaccine doses in their arms and as Washington aims for more spending measures to help facilitate a fuller recovery for from COVID-related damage.

Investors will await an account of the Fed's two-day meeting on March 16-17, set to be released at 2 p.m. Eastern Time, at which policy makers raised their forecasts for U.S. economic growth and inflation, but emphasized that accommodative monetary policy would hold in place until 2023.

However, the market has appeared to push back on those projections, with bond yields rising rapidly this year on expectations that the accelerating economic recovery from the pandemic could spur higher inflation.

Market participants on average are expecting four, quarter-percentage point rate increases by the end of 2023 from the current range of 0% to 0.25%.

"We expect the minutes to confirm that the Fed is not considering to start normalization sooner than it pledged to do so, which could allow stock indexes to continue trending north," wrote Charalambos Pissouros, senior market analyst at JFD Group.

"Even though officials upgraded their economic and inflation forecasts--inflation is seen at 2.4% this year, Fed Chair Powell clearly said that this will be temporary and would not meet their standards," wrote Pissouros.

"He also stuck to his guns that it is too early to discuss tapering [quantitative easing]," but some skeptics are expecting that the Fed could indicate plans to taper its bond-buying program as early as the end of this year .

A rise in bond yields has abated somewhat, with the 10-year Treasury note yield at around 1.65% Wednesday morning from 1.72% on Friday. The retreat in benchmarks bond yields has helped to foster some appetite for technology stocks which have benefited from a low interest rate regime.

Meanwhile, JPMorgan Chase & Co. JPM to shareholders on Wednesday, and offered an upbeat view of the economy.

"I have little doubt that with excess savings, new stimulus savings, huge deficit spending, more QE, a new potential infrastructure bill, a successful vaccine and euphoria around the end of the pandemic, the U.S. economy will likely boom," the executive wrote. "This boom could easily run into 2023 because all the spending could extend well into 2023."