Stocks open flat on fears the Fed will continue aggressive rate hikes

Stocks were flat on Wednesday as investors feared the Federal Reserve might make another big rate hike in September in a bid to rein in high inflation.

The Dow Jones Industrial Average slipped 33 points. The S&P 500 gained 0.05%. The Nasdaq Composite rose 0.22%.

Equity futures plunged into negative territory after a Suggested Wall Street Journal article that Federal Reserve Chairman Jerome Powell’s pledge to reduce inflation could mean that the central bank raises rates by 0.75 percentage points in September, which would be the third consecutive increase of this magnitude. Markets had been hoping the Fed would start granting more modest increases from September, but are now pricing in an 86% chance of a 0.75 percentage point hike.

Shares added to their three-week slide on Tuesday. The Dow Jones fell about 173 points, or 0.5%, and the S&P 500 slipped 0.4%. The Nasdaq Composite fell 0.7% to record its first seven-day losing streak since 2016.

The moves came amid a surge in bond yields that saw the 10-year US Treasury yield hit its highest level since June. The 30-year Treasury rate closed at its highest level since 2014. Bond yields move inversely to prices. Rates fell slightly on Wednesday, with the 10-year trading at 3.321%. The 2-year and 30-year yields were trading at 3.47% and 3.472% respectively.

Investors are divided on how to approach the market as they enter the first post-Labor Day week in September, a notoriously cruel month for stocks. All eyes are on the 3,900 level of the S&P 500. Some see the index falling to even lower lows, while others are bullish on a year-end rally.

“With equities back to June lows and the rate path reset, further inflation easing as well as decisive EU government intervention to tackle the energy crisis could cause a further compression of the decline,” Barclays’ Emmanuel Cau wrote in a Wednesday note. “Overview, we think equities remain in a tough spot given a poor growth-policy trade-off.”

On Wednesday, the Federal Reserve will deliver its summary of current economic conditions, also known as beige book. Elsewhere, Fed Chairs Loretta Mester of Cleveland and Tom Barkin of Richmond, as well as Fed Vice Chair Lael Brainard, are expected to speak at various events.

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