U.S. stocks edge lower as investors weigh earnings, await Fed

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U.S. stocks were mostly lower Wednesday afternoon, despite a brief bounce after the Federal Reserve opted to keep rates near zero, as expected, and monetary policy loose at the conclusion of its two-day policy meeting.

President Joe Biden also is expected Wednesday night to unveil a $1.8 trillion package of new spending and tax cuts aimed at bolstering children and families.

What are major indexes doing?

  • The Dow Jones Industrial Average fell 126 points, or 0.4%, to 33,858.
  • The S&P 500 was up about 2 points at last check at 4,189.
  • The Nasdaq Composite shed about 8 points, or almost 0.1%, at 14,080.

On Tuesday, major benchmarks were largely in a holding pattern, with the Dow posting a gain of 3.36 points, or less than 0.1%, at 33,984.93, while the S&P 500 shed less than 0.1% and the Nasdaq Composite gave up 0.3%.

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What’s driving the market?

Stocks briefly bounced higher Wednesday afternoon, but then receded, after the Federal Reserve opted to keep its benchmark interest rate near zero and policy accommodative at the conclusion of its two-day meeting, despite rising inflation.

Fed officials said the U.S. economy and employment picture have “strengthened” and that inflation climbed, but called the increase “transitory.”

Fed Chairman Jerome Powell also is expected to acknowledge a strengthening economy in his 2:30 p.m. Eastern press briefing, while echoing the Fed’s policy statement about staying committed to keeping policy settings loose.

Read: Debt markets getting the memo on the path of likely Fed rate hikes

Stocks have struggled for direction this week, with benchmark indexes trading near all-time highs, despite strong earnings and economic data as investors assess how much good news already has been factored into the market.

“This combination of easy monetary policy, expansionary fiscal policy and healthy household balance sheets has given rise to fears of overheating,” Scott Clemons, chief investment strategist at Brown Brothers Harriman, wrote in emailed commentary, but added that those “fears are overdone, particularly as earnings estimates continue to rise and provide more fuel to markets.”

While the market appears expensive based on current valuations, Clemons thinks that “at 23x 2021 full year forecasts, valuations are reasonable.” As a counterpoint, John Higgins, chief markets economist at Capital Economic, said the stock market will struggle for the next two years, because Wall Street’s views on earnings expectations are getting out of hand.

Need to Know: The Fed is standing aside as house prices rip higher — but here’s what could get in the way

Largely positive earnings results rolled in from a number of major technology companies and other corporate heavyweights late Tuesday and Wednesday, with more to come as one of the busiest weeks of reporting season continues.

Later Wednesday Biden, in an address to a joint session of Congress, is set to detail a plan that would see new spending on education, child care, and paid leave, while extending some tax breaks.

Read: Biden to lay out $1.8 trillion family spending plan that calls for capital-gains tax hike

To partly pay for the plan, Biden will propose raising the top tax rate on the wealthiest Americans to 39.6% from 37% and would raise the tax rate on capital gains for people earning more than $1 million a year to 39.6% from 20%. The tax changes are forecast to raise $1.5 trillion over 10 years.

“There’s a lot coming all at once” for the market to absorb, including earnings, taxes and government spending plans, Joshua Wein, a portfolio manager with Hennessy Funds, said in a phone interview Wednesday. He said aerospace giant Boeing Co. is among the companies weighing on the Dow, after the plane maker reported a larger-than-expected loss. Shares of Amgen Inc. and Microsoft Corp. also contributed to the blue-chip gauge’s intraday decline.

In economic news, the U.S. trade deficit in goods rose in March for a third straight month, hitting another record high. The advanced trade gap in goods climbed 4% to $90.6 billion in March, the U.S. Census Bureau said Wednesday.

Read: The U.S. economy sped up in the first quarter. Here’s what GDP data will show.

Which companies are in focus?

  • Shares of Dow component Microsoft Corp. were down 2.8% Wednesday after delivering earnings late Tuesday that easily topped Wall Street forecasts.
  • Alphabet Inc. shares were up about 4.2% after the Google parent served up record profits for a third straight quarter during the pandemic.
  • Advanced Micro Devices Inc. late Tuesday said data-center revenue more than doubled as it reported results that topped Wall Street estimates. Shares were down 0.9%.
  • Shares of Starbucks Corp. were down 3.3% after the retail coffee chain reported mixed fiscal second-quarter earnings, with sales slightly below forecasts.
  • Shares of Boeing Co. were down 2.7% after the plane maker and Dow component reported a larger-than-expected loss.
  • Shares of AMC Entertainment Holdings Inc. fell 5%, after the theater chain late Tuesday disclosed plans to sell up to 43 million shares in an at-the-market offering, but said it would not ask shareholders to approve the potential sale of 500 million more shares.
  • Amgen Inc. shares dropped 7% after the company said profit declined in the first quarter due to lower sales as the COVID-19 pandemic continued to affect patient visits and the diagnosis of new patients.
  • Visa Inc. shares were up 1.6% after the Dow component topped expectations with its latest quarterly results and saw a return to growth for credit transactions.
  • Shares of Mondelez International Inc. were up 4% after the maker of Oreos and other food and beverages reported first-quarter profit and sales above expectations
  • Shares of Yum Brands Inc. were up 0.9% after the global fast-food company beat first-quarter earnings and revenue expectations.
  • Six Flags Entertainment Corp. shares were down 1.6% after the theme park operator reported a narrower first-quarter loss that beat expectations, and a smaller-than-expected fall in revenue, as attendance was more than double what was anticipated.

What are other markets doing?

  • The yield on the 10-year Treasury note rose 2 basis points to 1.64%, after the Fed statement. Yields and bond prices move in opposite directions.
  • The ICE U.S. Dollar Index a measure of the currency against a basket of six major rivals, was flat.
  • Oil futures were higher, with the U.S. benchmark up 1.5% Gold futures closed lower, falling 0.3% to settle at $1,773.90 an ounce.
  • In global equity trading, the Stoxx Europe 600 index closed fractionally higher, while London’s FTSE 100 gained 0.3%. The Shanghai Composite and Hong Kong’s Hang Seng Index each rose 0.45%, while Japan’s Nikkei 225 gained 0.2%.

William Watts contributed reporting

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