The U.S. stock market is set to open higher on Wednesday, as investors await the release of the minutes from the Federal Reserve’s latest policy meeting. The minutes are expected to provide more clues on the central bank’s plans for tapering its massive bond-buying program, which has been supporting the economic recovery from the pandemic.
Fed Tapering in Focus
The Fed has been buying $120 billion worth of Treasury and mortgage-backed securities every month since March 2020, in an effort to keep borrowing costs low and stimulate the economy. However, as the economy has rebounded strongly and inflation has surged, some Fed officials have signaled that it may be time to start reducing the pace of these purchases.
The Fed’s July meeting statement indicated that the central bank was making progress toward its goals of maximum employment and price stability, and that it would continue to assess the appropriate timing and pace of tapering. The minutes, which will be released at 2 p.m. ET, could reveal more details on how close the Fed is to announcing a tapering plan, and how it plans to communicate it to the markets.
Investors are also looking for any hints on how the Fed views the recent surge in Covid-19 cases due to the Delta variant, and whether it poses a significant risk to the economic outlook. The Delta variant has caused some countries to reimpose lockdowns and travel restrictions, and has dampened consumer confidence and spending in some sectors.
Market Reaction
The anticipation of Fed tapering has weighed on the bond market, pushing the yield on the 10-year Treasury note up to 1.28% on Wednesday, from 1.22% on Tuesday. Higher bond yields tend to reduce the appeal of stocks, especially those with high valuations and long-term growth prospects.
However, the stock market has been resilient, as investors have focused on strong corporate earnings and positive economic data. The S&P 500 index closed at a record high on Tuesday, while the Nasdaq Composite and the Dow Jones Industrial Average also gained. The three major indexes are up more than 18% year-to-date.
On Wednesday, futures contracts tied to the S&P 500, the Nasdaq Composite and the Dow Jones Industrial Average were all up about 0.2% ahead of the opening bell, indicating a positive start for the session. Some of the stocks that were moving in premarket trading include:
- Xpeng (XPEV), which rose 4.4% after reporting better-than-expected quarterly results and delivering a record number of vehicles in July.
- Nvidia (NVDA), which gained 1.8% after announcing a four-for-one stock split and raising its revenue guidance for the current quarter.
- Blue Bird (BLBD), which jumped 9.5% after receiving an order for 76 electric school buses from a school district in Virginia.
- Target (TGT), which fell 2.6% despite beating analysts’ estimates for earnings and revenue in the second quarter.
Outlook
The Fed minutes are likely to be the main event for the markets on Wednesday, as investors look for more clarity on the central bank’s monetary policy stance. The Fed’s tapering decision could have significant implications for the bond market, the stock market, and the dollar.
However, investors should also keep an eye on other factors that could influence market sentiment, such as Covid-19 developments, geopolitical tensions, and corporate news. The market is also awaiting some key economic data later this week, such as weekly jobless claims on Thursday and consumer sentiment on Friday.
