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Nasdaq, S&P 500, Dow Jones rebound ahead of Fed decision

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Signs of stepped-up activity aimed at negotiating an end to the Russia-Ukraine conflict helped stocks stage a rebound on Tuesday, following losses posted in recent sessions. The gains took place ahead of a highly anticipated Federal Reserve announcement due out on Wednesday, with lower oil prices and a better-than-expected report on producer prices boosting sentiment

With the advance, the S&P 500 moved back above the 4,200 mark and Nasdaq rebounded from its lowest close since late 2020.

The major averages built strength headed into the close, with the Nasdaq (COMP.IND) ending +2.9%. The S&P (SP500) +2.2% and Dow (DJI) +1.8%.

Looking at closing numbers, the Nasdaq climbed 367.40 points to finish at 12,948.62. On the previous session, the index had recorded its lowest finish since December 2020.

The S&P 500 advanced 89.34 on Tuesday to finish at 4,262.45. The Dow rallied 599.10 points to conclude the session at 33,544.34.

Ten of 11 S&P sectors ended higher, led by Consumer Discretionary and Info Tech. Energy was the lone decliner, with a fall in oil prices contributing to a 3.7% retreat in the segment.

Rates pushed higher late in the day after an early dip. The 10-year Treasury yield gained about 1 basis point to approach 2.15%. The 2-year yield was basically flat on the session at 1.85%.

Part of Tuesday’s move can be attributed to bargain hunting in tech stocks, explaining the notable rally in the Nasdaq. BTIG says that investors could continue to buy this dip in momentum stocks and ETFs like ARKK, which was up 4% on the session.

Meanwhile, oil continued its recent downward trend, falling almost 7% to a level below $96 a barrel. Brent fell back below $100 per barrel as well and is down around 20% in a week.

“Oil prices fell despite no additional supply via Iran, US, Venezuela, or OPEC appearing likely,” Deutsche Bank’s Jim Reid said. “Instead, it seems as though Russian supply may make its way to buyers such as China and India with fewer frictions than were previously feared. As a secondary consideration, reports of Covid-19 lockdowns in China may have pushed prices lower due to potential lower demand needs.

On the inflation front, the February PPI rose 0.8%, while the core PPI rose 0.2%, both lower than consensus forecasts.

“Core PPI inflation is now close to peaking, though February’s low m/m print is unsustainable at this point,” Pantheon Macro said. “The y/y rate could easily nudge up a bit in March, from February’s 8.4%, but after that, favorable base effects mean it will fall quite rapidly after a huge overshoot.”

The Fed starts its two-day meeting today with at tightening cycle expected to start. Investors will also be keyed into policymakers’ commentary about the pace of future rate hikes.

“There is a strong consensus that the FOMC will take a hawkish stance, barring a surprise intensification or broadening of the Russia-Ukraine war,” Standard Chartered strategist Steve Englander said. “The rapidity with which 2Y UST yields hit new highs after the initial risk-off reaction indicates how well anticipated a hawkish Fed stance is.”

The analyst added: “We are not convinced by the ultra-hawkish arguments, but the FOMC may not be willing to consider dovish scenarios without clear signs of slowing economic growth. We think lagging real wages and falling disposable income will lead to a pause after July, but doubt the FOMC is ready to consider that case just yet.”

Among active stocks airlines and travel stocks are among the top S&P performers following bullish guidance and booking trends.