Stocks inch lower as rally attempt on Wall Street falters

The S&P 500 rose Wednesday as stocks attempted a comeback from the lows of the bear market, and as Federal Reserve Chairman Jerome Powell reiterated his stance against inflation.

The broader market index climbed 0.8%. The Dow Jones Industrial Average gained 209 points, or 0.7%. The Nasdaq Composite jumped 0.0%.

Those gains followed the worst weekly loss for stocks since 2020 after more aggressive monetary tightening from the Federal Reserve sparked concerns of a recession on Wall Street. Last week, the central bank raised rates by 0.75 percentage point and hinted another increase of that magnitude was possible next month.

“Broadly, yesterday and today strike me as kind of just a typical relief rally after the really aggressive downside from last week,” said Ross Mayfield, investment strategy analyst at Baird. “Nothing meaningful has shifted as we tried to search for where the the actual bottom of this bear market is.”

Federal Reserve Chairman Jerome Powell on Wednesday played down recession concerns and told Congress the central bank has the “resolve” to tame inflation that has surged to 40-year highs.

“At the Fed, we understand the hardship high inflation is causing,” the Fed chief said to the Senate Banking Committee. “We are strongly committed to bringing inflation back down, and we are moving expeditiously to do so.”

Powell added that the Fed will stay the course until it sees “compelling evidence that inflation is moving down.” He also said achieving a soft landing for the economy without a recession has become “significantly more challenging.”

Those remarks appeared to ease some investors who worried a more aggressive inflation-fighting stance last week signified that the central bank would rather risk a recession than endure persistent high inflation.

“I think the biggest headline today is that he kind of disclosed where he thinks the long run overnight rate is … and it’s not 3%, it’s more like two and a quarter,” said Kim Forrest, founder at Bokeh Capital.

“A lot of people are thinking that he may not overshoot,” Forrest continued.

Oil and bond yields fell on Wednesday, relieving some of the pressure they’ve given stocks lately. Brent crude futures dropped 2% to $112.41 per barrel. West Texas Intermediate, the U.S. oil benchmark, declined 2.2% to $107.02 per barrel.

The benchmark 10-year note yield fell to below 3.2%. Yields move inversely to prices.

The real estate and health care sectors drove outperformance in the S&P 500, with the sectors each up 2%. Shares of Crown Castle and American Tower jumped 5% and 4%, respectively. Shares of Moderna surged 7%.

Consumer discretionary stocks such as homebuilders Lennar and D.R. Horton each jumped 3%.

Other notable movers include shares of Netflix which spiked 5%. The streaming company was recently identified as a comeback idea in a CNBC Pro screen after cratering 70% year to date.

Expectations of a pending recession continued to grow on Wall Street this week. Citigroup raising chances of a global recession to 50%, pointing to data that consumers are starting to pull back on spending.

“The experience of history indicates that disinflation often carries meaningful costs for growth, and we see the aggregate probability of recession as now approaching 50%,” read a note from Citigroup.

Goldman Sachs believes a recession is becoming increasingly likely for the U.S. economy, saying that the risks are “higher and more front-loaded.”

“The main reasons are that our baseline growth path is now lower and that we are increasingly concerned that the Fed will feel compelled to respond forcefully to high headline inflation and consumer inflation expectations if energy prices rise further, even if activity slows sharply,” the firm said in a note to clients.

Meanwhile, UBS said Tuesday in a note to clients that it does not expect a U.S. or global recession in 2022 or 2023 in its base case, “but it’s clear that the risks of a hard landing are rising.”

“Even if the economy does slip into a recession, however, it should be a shallow one given the strength of consumer and bank balance sheets,” UBS added.

Meanwhile, energy stocks took a hit as oil prices dropped on concern a slower economy will hurt fuel demand. The sector was the worst-performing on the broad market index, last down 2.5%.

Shares of Marathon Oil and ConocoPhillips dropped more than 5% and 4%. Occidental Petroleum and Exxon Mobil dipped 2%.

On Wednesday, the White House released a fact sheet calling for Congress to suspend federal gasoline and diesel taxes for three months. The effort is meant to ease pressures at the pump for consumers during an election year.

On Tuesday, the Dow surged 641 points, or 2.15%. The S&P 500 added 2.45%, turning in its best day since May 4. The jump comes after the benchmark index slumped 5.79% last week in its worst weekly performance since March 2020.

The Nasdaq Composite advanced 2.51% on Tuesday, following its tenth week of losses in the last 11 weeks.

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