Stocks wavered on Wednesday as Wall Street struggled to snap a three-day losing streak and investors continued to digest inflation-fighting comments from Federal Reserve officials.
The Dow Jones Industrial Average ticked up by 2 points, churning at the flat line. The S&P 500 moved higher by 0.1% and the Nasdaq Composite added 0.2%.
The moves put the Dow and S&P about 7% and 10%, respectively, above their mid-June lows. The Nasdaq is now more than 12% above its summer low.
What began as a strong month for the three major averages is on pace to end on a weaker note. The Dow and S&P 500 are currently on pace to finish August about 3% lower. The Nasdaq is set to end down about 4%.
Investors had been debating for weeks whether the economy is in a recession or heading toward one, and many thought an economic downturn would give the Fed reason to ease up on its rate hiking plan. Powell reiterated in his Jackson Hole speech Friday, however, that the central bank is committed to get inflation under control and will continue to raise rates even in a recessionary environment.
“Markets were counting on limited rate increases and quick rate cuts,” said Brad McMillan, chief investment officer for Commonwealth Financial Network. “The speech was clear, however, that the increases will be larger, and the cuts more delayed, than anyone expected.”
Stocks have been selling off heavily since Friday. On top of Powell’s comments, Cleveland Fed President Loretta Mester said Wednesday that she sees benchmark interest rates rising above 4% by early next year. On Tuesday, New York Fed President John Williams called for “somewhat restrictive policy to slow demand.”
As jarring as the latest rout may be for investors, there may be some positive signs emerging.
“This volatility is really healthy and constructive,” Jeff Kilburg, chief investment officer of Sanctuary Wealth, told CNBC. “It doesn’t feel good, and the velocity that the Fed has injected into this de-risking process has taken the breath away of a lot of investors but… There are a lot of signs that are more optimistic than negative” – like the rise in Treasury yields, he said.
“For the market to go from 3,600 to 4,300 in 19 trading sessions, that is not sustainable,” he added. “Seeing the market come back and the S&P 500 filling volume around 4,000 is really constructive and allows us to have a foundation taking another leg higher with the backdrop of earnings season which is better than expected and the consumer sentiment slowly upticking.”