Market Snapshot: U.S stocks swing to minor losses as investors watch for clues on outlook from Fed

Want to understand the future of cryptos and NFTs? Register for MarketWatch’s free live event today: https://events.marketwatch.com/crypto/home

What’s driving the market?

Optimism about the outlook for the business climate is growing as more Americans get vaccine doses and as Washington aims for more spending measures to help facilitate a fuller recovery from the coronavirus pandemic.

So far this year, investors have favored assets that do better at the start of the economic cycle, marking a so-called value rotation.

“We haven’t seen this kind of value rally since 2016,” said Diane Jaffee, senior portfolio manager at TCW. “Just like there are super growth cycles, I do believe there are super value cycles. It didn’t come to pass in 2016 but I think we are in one now.”

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 that meeting, policymakers raised their forecasts for U.S. economic growth and inflation, but emphasized that accommodative monetary policy would stay in place until 2023.

However, the market has pushed 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%.

“I think investors are starting to realized that there will be a short-term rise in inflation, but it’s not going to be sustained,” Jaffee told MarketWatch. “Still, if the yield curve turns more positive or the 10-year yield rises but it’s because of economic growth, that’s a good thing. That’s what we’ve been waiting for these past 10 years!”

While most investors are aware that a big boost in infrastructure spending will help sectors like materials
XLB,
-1.47%
and industrials
XLI,
-0.65%,
Jaffee also thinks banks
XLI,
-0.65%
have a lot of things going in their favor, including some technical factors that will boost earnings, and some regulatory relief.

“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
TMUBMUSD10Y,
1.641%
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 benefit from a low interest rate regime.

Meanwhile, JPMorgan Chase & Co. JPM Chairman and CEO Jamie Dimon published his annual letter 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.” 

Which companies are in focus?

• Target
  TGT,
  -0.10%
  on Wednesday announced a commitment to spend more than $2 billion with Black-owned businesses by the end of 2025. Shares were fractionally lower.

• XPO Logistics Inc.
  XPO,
  +0.58%
   said Wednesday said it has more than 1,400 jobs available in North America, and plans to accelerate hiring to meet growing demand. Shares were up 0.9% in late morning trade.

• LumiraDX Ltd., a point of care diagnostics testing company, is going public via a merger with special-purpose acquisition corporation, or SPAC, CA Healthcare Acquisition Corp.
  CAHCU,
  +5.81%,
   in a deal with a pro forma enterprise value of about $5 billion. 

• Shares of MSC Industrial Direct Co.
  MSM,
  -5.22%
   dropped 4.8% Wednesday after the metalworking and maintenance, repair and operations (MRO) company reported a fiscal second-quarter profit that topped expectations but sales that fell shy.

• AppLovin Corp., APP a maker of software for mobile app developers, set terms for its initial public offering on Wednesday, with plans to offer 25 million shares priced at $75 to $85 each. 

•  Coinbase Global Inc.
  COIN,
  +3.70%
  revealed late Tuesday preliminary first-quarter revenue that topped $1 billion, surpassing revenue for all of last year, and a quarterly profit that approached $1 billion. The crypto trading platform is expected to debut on equity markets next week and released preliminary results for the January-March period and guidance for the full year 2021.

How are other assets faring?

• The ICE U.S. Dollar Index
  DXY,
  -0.04%,
   a measure of the currency against a basket of six major rivals, was down 0.1% at 92.27.

• The yield on the 10-year Treasury note
  TMUBMUSD10Y,
  1.641%
   was down 0.5 basis point at 1.646% as traders awaited the Fed minutes. Yields and bond prices move in opposite directions.

• Oil futures reversed course to trade lower after a report showed supplies were lower, with the U.S. benchmark
  CL.1,
  -1.75%
   down 60 cents, or 1%, at $58.73 a barrel on the New York Mercantile Exchange.

• Gold futures were lower, with the June contract
  GCM21,
  -0.11%
   shedding $1.40, or 0.1%, to $1,741.60 an ounce on Comex.

• In Europe, the Stoxx 600 index
  SXXP,
  -0.22%
    slipped 0.1%, while London’s FTSE 100
  UKX,
  +0.91%
  jumped 1%.

• In Asia, the Shanghai Composite SHCOMP finished 0.1% lower, Hong Kong’s Hang Seng
  HSI,
  -0.91%
  closed down 0.9%, while Japan’s Nikkei 225 NIK edged up 0.1%.

Read next: Here are the ETFs to help you invest in the Biden infrastructure plan