Stocks Are Wavering. Fed Worries Hang Over the Market.

Text size

The stock market was holding steady Wednesday, ahead of the afternoon release of the minutes from the Federal Reserve’s May meeting, which could provide more clues about its rate-hike plans.

In midday trading, the

Dow Jones Industrial Average
slipped 89 points, or 0.3%, while the

S&P 500
was flat and the

Nasdaq Composite
rose 0.4%.

That follows a selloff on Tuesday, which came on the back of an ominous warning from

Snap

(ticker: SNAP) that the company would miss its sales and profit guidance. The company blamed a weakening economic outlook, which would be consistent with a decrease in advertising spending, one of the easiest costs for companies to cut if they’re worried about an economic slowdown.  

Those slowdown worries have been caused by the Fed, which has been adamant about continuing to lift rates to reduce high inflation. But the question now is whether the central bank will hint that it is more likely to slow the pace of rate hikes or more likely to stick to its current rate-hiking path. The Fed minutes, due at 2 p.m., should provide a clue.

If the meeting minutes are less hawkish, that could support a continuation of the latest attempt at a relief rally while any more-hawkish leaning rhetoric or verbiage could lead to a resurgence in volatility as news flow has been decidedly negative over the last week,” wrote The Sevens Reports’ Tom Essaye.

Already, some signs are cropping up that higher interest rates are beginning to slow down the economy. New home sales, for example, declined in the mid-teens in percentage terms month-over-month as mortgage rates have soared. It’s “evidence that the Fed’s tightening and higher mortgage rates are beginning to flow through with their desired effect in terms of cooling the housing market,” wrote BMO Capital Market’s Ian Lyngen.

Spending on Citi credit cards, on an annualized basis, has also declined in the last few weeks, according to data from the bank. 

Data released Wednesday revealed that durable goods orders rose 0.4% in April from the prior month, below estimates of a 0.6% gain. The increase in orders compared to the same period last year has been decreasing in recent months. 

So with the major indexes all down double digits in percentage terms for the year, maybe a less-aggressive-than-expected Fed can keep the rally going Wednesday.

Then again, maybe the market will interpret the Fed as still too hawkish.

Here are some stocks on the move Wednesday:

Dick’s Sporting Goods

(DKS) stock initially dropped before rising 10% after the company cut its 2022 EPS guidance by about 15% and reduced its same-store-sales estimate to a decline of 5% year over year. Management cited “evolving macroeconomic conditions,” as the consumer spending outlook dims.

“The large cut to the 2022 guidance is disappointing and supports the view that consumers are spending less on sporting goods and promotions are likely to return to a more normalized level,” wrote Joe Feldman, analyst at Telsey Advisory Group. 

The stock had already lost about a third of its value for the year before earnings.

Wendy’s

(WEN) stock gained 10% after Trian Fund Management, led by billionaire Nelson Peltz, said in a filing that it talked with the board of the fast-food chain about “an acquisition, business combination (such as a merger, consolidation, tender offer or similar transaction) or other transaction.”

Intuit

(INTU) rose 7.3% after the tax and accounting software company posted better-than-expected fiscal third-quarter earnings and raised its financial forecasts for the year ending in July.

Nordstrom

(JWN) rose 11% after the retailer raised its guidance for the second time this year.

Toll Brothers

(TOL) rose 5.9% after the home builder reported better-than-expected second-quarter profit and sales.

Nvidia

(NVDA) shares rose 2.9% ahead of the chip maker’s fiscal first-quarter earnings scheduled for after the closing bell Wednesday.

Write to Jacob Sonenshine at jacob.sonenshine@barrons.com and Joe Woelfel at joseph.woelfel@barrons.com