S&P 500 falls for fifth straight session, with Nasdaq also falling; Dow ekes out slim gain

Investors remained leery on Wednesday, sending the S&P 500 lower for the fifth consecutive session. Stocks have been weighed down lately by a guarded approach to trading ahead of next week’s Federal Reserve meeting. The Nasdaq also declined, while a late push higher allowed the Dow to scrape out a fractional gain.

The Nasdaq Composite (COMP.IND) closed -0.5%, the S&P 500 (SP500) finished -0.2% and the Dow (DJI) ended fractionally higher.

“After a couple of weeks of developments involving a positive outlook associated with slower interest rate hikes moving forward, markets seem to be moving around in a fairly narrow range in a wait-and-see approach as they work to digest economic data and wait for additional data,” analyst Daniel Jones told Seeking Alpha, adding that Wednesday “proved to be a rather lackluster day, with no major events driving the direction of the markets.”

Jones added: “If there is any real trend, it’s that the Nasdaq, which is dominated by tech stocks, seems to be faring a bit worse than other indices. This suggests some aversion to risk and the high-priced, growth-oriented stocks that might do the worst if we do tip into a recession.”

Stocks rallied last Wednesday after Fed Chair Jerome Powell indicated that the central bank could begin slowing down its interest rate increases as early as this month’s policy meeting. However, since then, the market has steadily pushed lower, more than reversing that one-day surge.

In fact, that Powell-inspired jump last week represents the only higher finish for the S&P 500 in the past nine sessions. The index has fallen about 2% since its close the day before Thanksgiving, even with the one-day 3% pop it got from the Powell speech.

Stubbornly strong economic data has undermined the hope that Powell and his colleagues at the Fed will be able to pivot to a more dovish policy. Instead, many fear that ongoing economic strength will fuel continued inflationary pressures, forcing the Fed to remain hawkish in an attempt to curb price increases.

“Reality is setting in for the equity market as the fall rally ends. While the knee-jerk reaction from the equity market was that nothing new from Jay Powell was dovish, reality draws closer with the next FOMC meeting just a week away,” Seeking Alpha contributor Mott Capital Management said.

Mott Capital predicted that next week’s Fed meeting will likely end with a rate increase of 50 basis points, along with a “signal further tightening in 2023.” The firm also warned that “the US economy is probably heading to either a recession or a long period of stagflation.”

Looking at the fixed-income market, buying continued in bonds, sending yields lower. This continued momentum seen the day before, after yields advanced to start the week.

On Wednesday, the 10-year Treasury yield (US10Y) dropped 9 basis points to 3.42%. Meanwhile, the 2-year yield (US2Y) dropped about 10 basis points to 4.26%.

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