U.S. stock indexes pulled back from record territory Wednesday as Federal Reserve Chairman Jerome Powell kicked off two days of testimony, after saying in earlier prepared remarks that a sharp rise in inflation will fade.
In his written testimony to Congress, the Fed chief also said that the labor market, although improving, has a long way to go toward recovering from the pandemic. Powell is due to brief the House Financial Services panel at 12 p.m. Eastern Time.
Investors are also weighing another batch of quarterly results from the nation’s largest financial institutions and a reading of the June producer-price index, which jumped 1% last month.
How are stock benchmarks trading?
The Dow Jones Industrial Average
was up 17 points, near 34,905, after briefly turning negative.
S&P 500 index
traded roughly flat near 4,372, after carving out a fresh intraday all-time high at 4,393.68 near the start of the session.
The Nasdaq Composite Index
was off 9 points, or less than 0.1%, near 14,669, after trading above its July 12 closing high at 14,733.24.
On Tuesday, the Dow fell 107.39 points, or 0.3%, to end at 34,888.79; the S&P 500 index declined 15.42 points, or 0.4%, to close at 4,369.21, and the Nasdaq Composite fell 55.59 points, or 0.4%, finishing at 14,677.65. The small-capitalization Russell 2000 index
What’s driving the market?
Worries about monetary policy and inflation are back in focus on Wednesday after the June producer-price index came in hotter than expected, confirming that inflation is on the rise as the economy attempts to bounce back from the COVID pandemic.
The PPI jumped 1% last month, the government said Wednesday. Economists polled by The Wall Street Journal had forecast a 0.6% increase.
The PPI data followed higher consumer price inflation data on Tuesday which showed prices rose 5.4% in the year to June, the highest rate since 2008, when oil hit a record $150 a barrel.
“Inflation has increased notably and will likely remain elevated in coming months before moderating,” Powell said, in prepared remarks Wednesday for the first of two days of semiannual congressional testimony.
The central bank chief is to provide testimony to the House Financial Services Committee later Wednesday as a part of his semiannual update to lawmakers about the state of the economy, followed by testimony to the Senate Thursday.
On the labor market, Powell said that “while reaching the standard of ‘substantial further progress’ is still a ways off, participants expect that progress will continue.”
“Job gains should be strong in coming months as public health conditions continue to improve and as some of the other pandemic-related factors currently weighing them down diminish,” Powell said.
Investors will also be looking for any more clarity from Powell on the timing of raising policy interest rates and plans for tapering the Fed’s asset-purchase program that is currently running at $120 billion a month.
“Needless to say, the markets will be watching closely to see if the latest CPI print has adjusted the Fed’s thinking regarding elevated inflation being transitory,” wrote Sophie Griffiths, market analyst at Oanda, in a daily note. “Any hint that the Fed’s position is wavering could see stocks take another leg lower,” the analyst added.
Minutes of the Fed’s last policy meeting in June showed the central bankers discussed when to slow down the asset purchases but no decision was reached. Powell’s prepared remarks on Wednesday said that the Fed is discussing tapering its bond buying and that it “will continue these discussions in coming meetings.”
So far, most Fed members have not been flustered by the jump in inflation, with most officials, like Powell, describing it as likely short-lived.
On Tuesday San Francisco Fed President Mary Daly characterized the CPI print as just part of a temporary “pop” in inflation that won’t last, and the central bank should remain “steady in the boat” with its easy policy stance.
Meanwhile, Senate Democrats announced late Tuesday said that they’d reached a budget agreement envisioning spending a $3.5 trillion over the coming decade, paving the way for their drive to pour federal resources into climate change, healthcare, and family-service programs sought by President Joe Biden.
Separately Tuesday, a bipartisan group of senators continued working on a third measure that would spend around $1 trillion on roads, water systems and other infrastructure projects, another Biden priority.
Which companies are in focus?
Shares of Bank of America Corp.
dropped 4.7% Wednesday, after the moneycenter bank reported a second-quarter profit that rose above expectations but revenue fell short, weighed by misses in the consumer banking and global markets businesses.
Eli Lilly & Co. LLY said Wednesday it is acquiring the shares of Protomer Technologies it doesn’t already own, in a deal it says has a potential value of more than $1 billion based on future development and commercial milestones.
Verso Corp. VRS, a specialty and packaging paper and pulp company, on Wednesday confirmed that it has received an unsolicited bid from Atlas Holdings LLC to take over the company for $20 a share in cash.
Sight Sciences Inc. SGHT, is now set to go public at a valuation of more than $1 billion, after the expected pricing and number of shares to be offered in the California-based Ophthalmology and optometry company’s initial public offering were increased.
How are other assets faring?
The yield on the 10-year Treasury note
fell 7 basis points to 1.35%.
The ICE U.S. Dollar Index DXY, a measure of the currency against a basket of six major rivals, was down 0.3%.