Wall Street rebounds after selloff on rate hike worries

N E W YORK: US stock indexes rose on Wednesday as investors scooped up beaten-down energy and technology shares following a sharp selloff in the previous session on worries about steep interest rate hikes by the Federal Reserve to curb surging prices.

Five of the 11 major S&P sectors were higher, led by a 3.2% jump in the energy sector as oil prices rebounded nearly 2% on supply concerns.

Shares of technology and growth companies such as Amazon.com , Tesla Inc and Apple Inc gained between 0.9% and 1.3% ater leading declines on Tuesday.

The three major indexes on Tuesday posted their biggest one-day percentage declines since June 2020, as the consumer price report cemented bets that the US central bank will go ahead with its third straight 75-basis-point increase in rates next week.

Wednesday’s inflation data was more benign, showing producer prices declined for a second straight month in August as gasoline prices fell further, but was not enough for investors to reconsider the Fed’s aggressive stance.

Markets are pricing in a 37% chance of a massive 100 bps increase by the Fed, and expects rates to peak at 4.34% by March 2023.

“It’s plausible if not probable. At the same time, I believe and hope that the Fed is also going to be judicious with regard to how aggressive it is in light of the fact that the economy is slowing,” said Mark Luschini, chief investment strategist at Janney Montgomery Scot in Philadelphia.

“From here, it is a mater of whether we can get a ricochet bounce or what we’re seeing now is just simply some sellers covering. It will be premature to say that the close we had ater yesterday’s carnage in equity markets was necessarily the botom.”

Stocks had rallied ahead of the inflation data with the S&P 500 managing to hold the 3,900 level, seen as a significant technical support by analysts, as easing commodity prices, especially oil, raised hopes the Fed would scale back its aggressive policy tightening. Growing expectations of a more hawkish Fed are an unwanted development for a market already contending with worries that the central bank’s efforts to tame inflation could tip the economy into a recession.

September, which is a seasonally weak period for markets, will also see the Fed ramp up the unwinding of its balance sheet to $95 billion per month, a move some investors fear may add to volatility in markets and weigh on the economy.

At 11:59 a.m. ET, the Dow Jones Industrial Average was up 89.14 points, or 0.29%, at 31,194.11, the S&P 500 was up 15.84 points, or 0.40%, at 3,948.53, and the Nasdaq Composite was up 83.29 points, or 0.72%, at 11,716.87.

The CBOE volatility index, also known as Wall Street’s fear gauge, fell to 26.53 points, ater hiting a two-month high in the previous session.

Meanwhile,focuswasalsoontalksinwashington with freight railroad and union officials aimed at heading off a rail shutdown looming as early as Friday that could disrupt cargo shipments, impede food and fuel supplies and add to inflation woes.

Shares of U.S. railroad operators Norfolk Southern, CSX Corp and Union Pacific Corp were down between 2.6% and 4.9%.

Starbucks Corp jumped 6% ater the coffee chain lited its three-year profit and sales outlook.

Advancing issues outnumbered decliners by a 1.23-to-1 ratio on the NYSE and by a 1.22-to-1 ratio on the Nasdaq.

The S&P index recorded two new 52-week highs and 28 new lows, while the Nasdaq recorded 17 new highs and 163 new lows. Oil rose about 2% on Wednesday, rebounding from the previous day’s lows, as an international energy watchdog expects an increase in gas-to-oil switching due to high prices this winter, even though the outlook for demand remains gloomy.

Brent crude futures rose by $1.86 a barrel, or 2%, to $95.03 by 11:58 a.m. EDT (1558 GMT). U.S.

West Texas Intermediate crude gained $2.06, or 2.4%, to $89.37.

The International Energy Agency (IEA) expects the deepening economic slowdown and a faltering Chinese economy to cause global oil demand to grind to a halt in the fourth quarter of the year.

However, the IEA also said it expects widespread switching from gas to oil for heating purposes, saying it will average 700,000 barrels per day (bpd) in October 2022 to March 2023 - double the level of a year ago. That, along with overall expectations for weak supply growth, helped boost the market. Global observed inventories fell by 25.6 million barrels in July, the IEA said.

US inventories rose last week, once again boosted by the ongoing releases from the Strategic Petroleum Reserve (SPR), latest government data showed.commercialstocksroseby2.4millionbarrels as 8.4 million barrels were released from the SPR, part of a program scheduled to end next month.