US stocks mixed, dollar strengthens as Powell hints at two more rate hikes

Wall Street was mixed and the dollar rebounded on Wednesday as Federal Reserve Chairman Jerome Powell suggested two more rate hikes are in the cards.

The Nasdaq advanced, powered by megacap momentum stocks, while the S&P 500 was essentially unchanged and healthcare stocks pulled the Dow into negative territory.

“There’s a lack of near-term catalysts and some worry about earnings and rates going forward,” said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia. “We’ve had a big rally in the indexes this year, so any plateau or pause doesn’t surprise me in the least.”

Powell, participating in a policy panel along with European Central Bank President Christine Lagarde, Bank of England Governor Andrew Bailey and others, suggested another two hikes to the Fed funds target rate are likely.

“You’ve got to take these people at their word, and they are concerned about getting back to core inflation targets,” Tuz added.

Financial markets are pricing in an 84.3% probability that the central bank will raise the Fed funds target rate by 25 basis points at the conclusion of its July policy meeting, according to CME’s FedWatch tool.

The Dow Jones Industrial Average fell 106 points, or 0.31%, to 33,820.74, the S&P 500 gained 1.46 points, or 0.03%, to 4,379.87 and the Nasdaq Composite added 76.28 points, or 0.56%, to 13,631.96.

European stocks advanced as strong U.S. economic data released on Tuesday allayed fears of a steep economic downturn, even as Lagarde warned that the ECB is still not seeing enough evidence of an inflation cool-down.

The pan-European STOXX 600 index rose 0.74% and MSCI’s gauge of stocks across the globe gained 0.15%.

Emerging market stocks lost 0.31%. MSCI’s broadest index of Asia-Pacific shares outside Japan closed 0.19% lower, while Japan’s Nikkei rose 2.02%.

The greenback rebounded from the previous session’s softness, gaining strength as Powell participated in the central bank policy panel.

The dollar index rose 0.47%, with the euro down 0.53% to $1.0901.

The Japanese yen weakened 0.33% versus the greenback at 144.55 per dollar, while Sterling was last trading at $1.2611, down 1.06% on the day.

Treasury yields softened as investors looked to Friday’s PCE price index for further signs of slowing inflation.

Benchmark 10-year notes last rose 5/32 in price to yield 3.7504%, from 3.768% late on Tuesday.

The 30-year bond last rose 3/32 in price to yield 3.8359%, from 3.84% late on Tuesday.

Crude prices reversed course and were last higher as a larger-than-expected drop in U.S. crude inventories offset fears of rate hikes and slowing demand.

U.S. crude rose 1.17% to $68.49 per barrel and Brent was last at $73.34, up 1.14% on the day.

Gold prices touched a 3-1/2 month low as investors bet on a higher-for-longer Fed rate policy. Spot gold dropped 0.4% to $1,906.39 an ounce.