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All Eyes on Fed Decision: Key Stocks to Watch

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The Federal Reserve is set to conclude its two-day policy meeting on Wednesday, with Fed Chair Jerome Powell delivering his typical post-meeting afternoon conference. But with recent banking failures roiling financial markets, will Powell stay the course and pull the trigger on another hike?

U.S. stocks rose sharply during Tuesday’s session, as Treasury Secretary Janet Yellen reassured markets that backstop measures are in place to contain any contagion resulting from recent bank failures. The Nasdaq (+1.58%) resumed its streak of outperformance, as tech stocks attempt to break out of a recent range. The S&P (+1.3%) and Dow (+0.98%) also posted considerable gains, with both indexes moving back above their respective 200-day moving averages as a result. Positive seasonality (along with lower volatility) is helping boost stocks in the latter half of March.

Fed Hike Odds

The major indices were slightly lower in early trading Wednesday morning ahead of the Fed rate hike decision. Markets are now pricing in a roughly 88% probability of another 25-bps hike, which would lift the Fed’s key interest rate to a range of 4.75% to 5%:

CME Group
Image Source: CME Group

Wall Street isn’t entirely ruling out a Fed pause, but concerns are rampant over an early hiatus given that inflation still remains high. Market participants will be keenly focused on Powell’s commentary during the press conference.

Failures across the financial sector including Silicon Valley Bank and Signature bank have roiled global markets. But stocks have rebounded after the Fed guaranteed all uninsured deposits. Further actions to stabilize a worrisome banking sector also helped propel markets in recent days, including a deal involving the UBS purchase of troubled Credit Suisse.

Markets are searching for a positive catalyst to help fuel another leg higher. Stocks are typically volatile on the day of a rate-hike decision, so there is potential for a drastic move if the Fed decides to pause.

Stocks to Watch

Tesla (TSLA - Free Report) shares shot up nearly 8% during yesterday’s session, as the company received an upgrade from rating agency Moody’s to Baa3 – investment grade level, albeit the lowest tier. A positive development for Tesla. TSLA shares were slightly lower early Wednesday.

Image Source: StockCharts

NVIDIA (NVDA - Free Report) stock rose after the company announced AI supercomputing tools for businesses that access AI through other cloud providers. NVIDIA also benefitted after a number of price-target hikes surrounding the company’s 2023 GPU Technology Conference. NVDA shares were up nearly 3% Wednesday morning.

Image Source: StockCharts

GameStop (GME - Free Report) shares exploded more than 40% in the early going after blowing past quarterly earnings expectations. GameStop adjusted earnings of $0.16/share compared favorably to the -$0.16/share Zacks Consensus Estimate, while sales of $2.226 billion also surpassed the $2.168 billion projection. GME shares hit a high for the year with today’s move.

Image Source: StockCharts

The market is giving the Fed room for another 25-bps hike today. The decision is due out at 2 p.m. EST, with Powell’s conference scheduled for 2:30 p.m. Be sure to keep an eye on what will undoubtedly be volatile trading surrounding the decision.

Disclaimer: Tesla and NVIDIA are holdings within the Zacks Headline Trader portfolio.

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