Stocks rise amid expectations of another big rate hike

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Stocks rose on Wall Street after swaying between small gains and losses for much of the day as investors brace for another big interest rate increase this week from the Federal Reserve.

The S&P 500 gained 27 points, or 0.7%, to close at 3,899. The Dow Jones industrials rose 197 points, or 0.6%, to 31,020. The tech-heavy Nasdaq was up 87 points.

Smaller company stocks also rose as the market gained momentum in the final hour of trading. The Russell 2000 was up 0.7%.

Wall Street remains focused on stubbornly high inflation and the Federal Reserve’s attempt to lower prices by aggressively raising interest rates. Most economists forecast that the Fed will jack up its primary lending rate — which influences interest rates throughout the economy — another three-quarters of a point when the central bank’s leaders meet on Wednesday.


A look at how the Fed’s interest rate hike could impact consumers

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Last week, the U.S. reported that consumer prices rose 8.3% through August compared with last year, the job market is still red-hot and consumers continue to spend, all of which give ammunition to Fed officials who say the economy can tolerate more rate hikes.

The fear is that the Fed and other central banks might overshoot their policy targets, triggering a recession. 

“Hot under the hood” inflation

“Fact is, hawkish expectations built on the ‘hot under the hood’ U.S. inflation print means that markets have good reason to be braced for headwinds amid prospects of higher (for longer) rates; and arguably ‘higher for longer’ USD (dollar) as well,” Vishnu Varathan of Mizuho Bank said in a commentary.

On Friday, a stark warning Friday from FedEx about rapidly worsening economic trends elevated anxiety in markets. The S&P 500 fell 0.7%, while the Nasdaq lost almost 1%. The Dow lost almost half percent.

The S&P 500 sank 4.8% for the week, with much of the loss coming from a 4.3% rout on Tuesday following a surprisingly hot report on inflation.

All the major indexes have now posted losses four out of the past five weeks.

FedEx warning spooks market

The broader market is coming off of its worst week in three months following the surprisingly hot CPI report on inflation and big companies, including FedEx, warning about worsening trends in the economy.

FedEx sank 21.4% for its biggest single-day sell-off on record Friday after warning investors that its fiscal first-quarter profit will likely fall short of forecasts because of a drop-off in business. The package delivery service is also shuttering storefronts and corporate offices and expects business conditions to further weaken.

Higher interest rates tend to weigh on stocks, especially the pricier technology sector. The housing sector is also hurting as interest rates rise. Average long-term U.S. mortgage rates climbed above 6% last week for the first time since the housing crash of 2008. The higher rates could make an already tight housing market even more expensive for American homebuyers.


Bank of America offers zero-down mortgages to address racial homeownership gap

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Investors will get another update on the housing sector on Wednesday when the National Association of Realtors releases August figures for sales of previously occupied homes.

Average long-term U.S. mortgage rates climbed above 6% last week for the first time since the housing crash of 2008. The higher rates could make an already tight housing market even more expensive for American homebuyers.

But the rate hikes have yet to cool the economy substantially.


iPhone 14 being unveiled at Wednesday Apple event

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Technology stocks, retailers and banks gained helped lift the market. Apple rose 2.3%, Home Depot rose 1.6% and Bank of America rose 1.5%. Health care stocks slipped and tempered gains elsewhere in the  market. Pfizer fell 1.3%.

 The yield on the 2-year Treasury, which tends to follow expectations for Fed action, rose to 3.94% from 3.87% late Friday. The 10-year yield, which influences mortgage rates, rose to 3.48% from 3.45%.

In other trading Monday, U.S. benchmark crude lost $2.01 to $83.10 per barrel in electronic trading on the New York Mercantile Exchange. It edged up 1 cent to $85.11 per barrel on Friday.

Brent crude oil gave up $1.93 to $89.42 per barrel.

Britain was observing a day of mourning for Queen Elizabeth II. Japan’s markets were closed for a holiday.

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