Wall St struggles for direction ahead of Fed testimony

US stock indexes are subdued in cautious trading ahead of Federal Reserve Chair Jerome Powell’s testimony before Congress that could shed more light on the central bank’s interest rate hike plans.

Powell will testify before the Senate Banking Committee on Tuesday morning, with investors awaiting his comments on the Fed’s steps aimed at bringing inflation towards its 2.0 per cent target.

Powell said in his last press conference that a “disinflationary process” had begun while cautioning the US central bank’s fight against rising prices was not over.

Inflation data since his February 1 remarks has shown prices have not fallen by as much as analysts were expecting while the labour market has shown signs of resilience.

“We don’t really expect anything new to be shared, he’ll (Powell) probably remain hawkish. He’ll say that we need to be higher for longer and pretty much everything else we’ve been hearing so far,” said Sam Stovall, chief investment strategist at CFRA Research, New York.

The benchmark S&P 500 closed higher for a third straight session on Monday as Treasury yields took a breather from their recent rally that was driven by hopes the Fed could hold interest rates at a higher level than many had expected at the start of the year.

The yield on two-year Treasury notes, which best reflects short-term rate expectations, hit its highest since 2007 at 4.94 per cent last week and has since been hovering below that level.

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

Recent economic data and comments from Fed policymakers have prompted traders to reassess the path of rates, with money market futures pricing in a 28 per cent chance that the central bank will increase rates by a bigger 50 basis points in March, according to CME Group’s Fedwatch tool.

Traders expect Fed fund rates to peak at 5.46 per cent by September, from the current 4.67 per cent.

“The Street is looking for any indication that the Fed will be aiming more towards 6.0 per cent, and that would be a bigger concern… 5.5 per cent is pretty much already being weighed by the market,” Stovall said.

Investors also await data later this week that is expected to show non-farm payrolls increased by 200,000 in February compared with the much stronger-than-expected 517,000 jobs reported in January.

Denting sentiment, Bank of America Chief Executive Officer Brian Moynihan said the US economy would reach a technical recession in the third quarter of 2023.

In early trading, the Dow Jones Industrial Average was down 28.80 points, or 0.09 per cent, at 33,402.64, the S&P 500 was down 1.44 points, or 0.04 per cent, at 4,046.98, while the Nasdaq Composite was up 23.27 points, or 0.20 per cent, at 11,699.01.

Among individual stocks, Rivian Automotive fell 8.8 per cent after the electric car maker unveiled plans to sell bonds worth $US1.3 billion ($A1.9 billion).

Meta Platforms Inc gained 2.0 per cent after Bloomberg News reported the company will cut thousands of jobs as soon as this week in a fresh round of layoffs.

Dick’s Sporting Goods rose 7.5 per cent after the retailer forecast annual earnings above Wall Street estimates and more than doubled its quarterly dividend.

Declining issues outnumbered advancers for a 1.09-to-1 ratio on the NYSE.

Advancing issues outnumbered decliners by a 1.05-to-1 ratio on the Nasdaq.

The S&P index recorded seven new 52-week highs and one new low while the Nasdaq recorded 20 new highs and 30 new lows.