March 21, 2023

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The S&P 500 will end slightly higher ahead of Powell’s testimony and upcoming data

(Reuters) – The S&P 500 made slight progress on Monday, closing slightly lower than its session high, as US Treasury yields rose as investors prepared for this week’s testimony from Federal Reserve Chairman Jerome Powell and the February jobs report.

Earlier in the session, indices looked much stronger with the Nasdaq (.IXIC) rising more than 1% at one point before gradually losing ground. The biggest boost came from iPhone maker Apple Inc (AAPL.O) after Goldman Sachs initiated coverage with a Buy rating.

But stocks gave up earlier gains as yields on the 10-year US Treasury note and the 2-year Treasury yield returned from early declines after data showed new orders for US manufactured goods fell less than expected in January.

Higher bond yields tend to affect equity valuations, particularly those of growth and technology stocks, as higher rates reduce the value of future cash flows.

Reuters graphics

said Erin Twinkle, senior US equity analyst

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BCA Research in New York will keep a close eye on the US Nonfarm Payrolls report for February, due on Friday.

“People are worried about the jobs number and economic data because they are worried about what the Fed is going to do. In the end all roads lead to the Fed.”

With the prospect of a Fed rate hike their main concern, Monday’s data has already dampened investor enthusiasm, said Sean Cruz, chief trading analyst at TD Ameritrade in Chicago.

“The market’s decline was because there is still a lot of work to be done on inflation,” Cruz said. “We’re not seeing the kind of slowdown in demand that we need to see. The whole point of the Fed’s rate hike is to slow the economy.”

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According to preliminary data, the Standard & Poor’s 500 index rose by 2.72 points, or 0.07%, to close at 4,048.36 points, while the Nasdaq Composite Index lost 12.59 points, or 0.11%, to 11,676.41 points. The Dow Jones Industrial Average rose 38.69 points, or 0.12%, to 33,429.66 points.

The commodity-related materials (.SPLRCM) sector was weak on Monday after China set a lower-than-expected target for economic growth this year at around 5%.

The three major US stock indices rebounded on Friday and posted weekly gains after comments by Federal Reserve policy makers calmed concerns about aggressive rate hikes.

But San Francisco Fed President Mary Daley said Saturday that if inflation and labor market data continue to rise more than expected, interest rates will need to rise and stay there longer than federal policymakers expected in December.

Investors will be looking for clues about the future path of the Fed’s rate hikes when Powell testifies before Congress on Tuesday and Wednesday. Since Powell’s latest strong economic data and hotter-than-expected inflation rates have raised concerns that the Fed will raise interest rates higher than expected or keep them higher for longer.

Traders expect at least three additional 25 basis point hikes this year and see interest rates peak at 5.44% by September from 4.67% now.

Shares of cryptocurrency-related companies were volatile after Silvergate Capital Corp (SI.N.) pulled its cryptocurrency payments network, casting doubts about the company’s ability to stay in business.

(This story has been corrected to say that the S&P closed slightly below its session high, not lower.)

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Additional reporting by Sinad Karo, Sruthi Shankar, Pansari Mayur Kamdar and Shristi Achar A in Bengaluru; Editing by Vinay Dwivedi, Anil D’Silva, and Richard Chang

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