U.S. Markets Bounce Back From Tuesday’s Month-End Sell-Off
U.S. equity markets were seen opening a little higher on Wednesday, reversing part of Tuesday’s declines ahead of the first Federal Reserve interest-rate announcement of the year.
U.S. stocks came under pressure on Tuesday, but with the end of the month fast approaching and indices having recorded around 7% gains this month, as of last week’s close, it’s likely that much of this was driven by some rebalancing, rather than signalling that investors are less bullish. It will be interesting to see how markets trade in the coming days, but I don’t expect this to be the start of a broader decline.
As it's the case for much of the week, there’s plenty for investors to focus on today. U.S. President Donald Trump’s first State of the Union address offered little for markets to get excited about, as Trump mainly took the opportunity to showcase the triumphs of his first year in charge. This is broadly in line with expectations heading into the event itself, so investors now move on to the next key events of the week.
Fed Statement Key In The Absence Of Press Conference
Wednesday's monetary policy meeting will be the first of the new year for the Fed, and the last under the leadership of Janet Yellen, who will shortly be replaced as Chair by Jerome Powell. Bearing that – and the fact that the U.S. central bank raised interest rates at its last meeting in December – in mind, we’re not expecting any changes today, but we may get some insight into whether the new tax reforms have altered the policymakers' views.
Of course, in the absence of a press conference with the Fed Chair, we’ll have to rely on the accompanying statement to provide fresh insight, at least until the minutes are released in a few weeks. However, any slight change of tone can prompt quite a reaction in the markets, so traders will be looking for any evidence that future rate hikes are under-priced, given the recent changes.
ADP Number And Earnings Also In Focus
Ahead of the central bank announcement, we’ll get some employment data from ADP, which comes ahead of Friday’s jobs report. The ADP is seen as being indicative of the official nonfarm payrolls figure but in reality that is often not the case. Still, traders will be looking for signs that market expectations for January are way off the mark, so the indicator still has the potential to cause some market moves.
There’s also a plethora of companies reporting fourth-quarter earnings today – including 34 firms from the S&P 500 and two from the Dow Jones – which will be of interest to investors, and could have an impact on overall market sentiment. Once again though, being the final trading day of the month, equity markets may not move entirely rationally today.