U.S. stocks pause for breath after bounce, with all eyes on Fed’s Powell

What’s driving the market?

Powell will testify before the House select subcommittee on the coronavirus pandemic at 2 p.m. Eastern, for his first public appearance since last Wednesday when the Fed chief acknowledged that policy makers had started to discuss the eventual reduction of the Fed’s monthly bond purchases. The Fed last week surprised markets at its policy meeting by revealing policy makers now expect two interest rate hikes by the end of 2023, earlier than previously anticipated.

“We at the Fed will do everything we can to support the economy for as long as it takes to complete the recovery,” Powell said, in prepared testimony released by the subcommittee late Monday.

“Powell reiterated his view that the recent jump in inflation would prove transitory. While such comments seem to have soothed concerns over the Fed’s hawkish tilt, the question is for how long?” said Lukman Otunuga, senior research analyst at FXTM, in a note.

“Given how markets remain highly sensitive to comments from Fed officials and inflation expectations, the next few days promise to be quite eventful for markets with numerous Fed speakers on the roster,” he said.

A key question for investors following the market reaction to last week’s Fed moves centers on the fate of the reflation trade — bets that assets poised to benefit the most from accelerating economic growth and inflation will outperform their peers.

The reflation trade found renewed life Monday, after suffering in the wake of last Wednesday’s Fed meeting, with value-oriented stocks falling, growth stocks rallying and the yield curve flattening. But the Fed’s change in tone is unlikely to stand in the way of continued post-pandemic growth and a further rise in inflation, said Lauren Goodwin, economist and portfolio strategist at New York Life Investments.

“The reflation trade will not develop linearly from here, and investors should expect hiccups. But the Fed’s adjusted path is hardly a recession-starter,” she said, in a note.

“Higher short-term rates in 2023 and fewer asset purchases in 2022 are unlikely to dramatically shift the ongoing rebound in economic growth,” Goodwin wrote. “Instead, this brief unwind will represent an opportunity to build positions in the reflation theme, through cyclical equity and lower duration.”

Read: Is the reflation trade over? What stock-market investors need to watch

Investors were set to hear from other Fed officials before the spotlight falls on Powell. Cleveland Fed President Loretta Mester was scheduled to deliver a speech to a Norway Central Bank conference on Tuesday morning, while San Francisco Fed President Mary Daly was slated to talk about climate risk and the Fed in a speech before the Peterson Institute for International Economics.

Another busy week of initial public offerings is under way, with 17 deals on tap, including at least two expected to raise more than $1 billion.

In U.S. economic data, May existing-home sales fell 0.9% to a seasonally adjusted annual rate of 5.8 million, the National Association of Realtors reported. Compared with May 2020, home sales were up nearly 45%, though the year-over-year comparisons are skewed by the onset of the COVID-19 pandemic last year.

Economists polled by MarketWatch had projected existing-home sales to come in at 5.73 million.

Which companies are in focus?

• GameStop Corp. GME, +5.31% said Tuesday it has completed an at-the-market equity offering after issuing 5 million shares to raise about $1.126 billion. The videogame retailer and leading meme stock said it would use the proceeds for the catchall general corporate purposes and for growth initiatives. Shares rose 5.1%.
• The European Commission said it opened a formal antitrust investigation to assess whether Alphabet Inc.’s  GOOG, +0.14% GOOGL, -0.30% Google has violated European Union competition rules by favoring its own online display advertising technology services. Shares were up 0.1%.
• Blackstone Real Estate Income Trust Inc., a real-estate investing platform managed by a unit of private-equity firm Blackstone Group Inc.  BX, +0.64% announced Tuesday that it would acquire Home Partners of America in a deal valuing the company at $6 billion. Blackstone shares rose 0.9%.
• Delta Air Lines Inc. DAL, -1.15% plans to hire more than 1,000 pilots by next summer, according to multiple news reports. Citing an internal memo, Reuters and Bloomberg News separately reported that the airline looks to increase the number of pilots by about 8%, anticipating a recovery in air travel over the next year as international travel restrictions ease. Shares were down 1%.
• Shares of Sanderson Farms Inc. SAFM, +10.18% rose more than 10%, after The Wall Street Journal reported the third-largest U.S. chicken producer has tapped Centerview Partners for advice on a potential sale and has attracted interest from suitors, including agricultural investment firm Continental Grain Co.
• Korn Ferry KFY, +3.72% shares rose 3.3% after the consulting firm swung to a record fiscal fourth-quarter profit that exceeded expectations, and provided an upbeat outlook for the current quarter.
• Shares of Plug Power Inc. PLUG, +10.82% rose nearly 11% after the hydrogen fuel cell company reported a wider-than-expected first-quarter loss but revenue that rose above expectations as product revenue more than doubled.

What are other markets doing?

• Bitcoin BTCUSD, -3.40% broke below the $30,000 threshold for the first time since January on Tuesday, adding to a price drop that has wiped out more than $1.3 trillion in market value for the broader crypto complex since a peak in May.
• The yield on the 10-year U.S. Treasury note edged up 0.3 basis point to 1.487%. Yields and debt prices move inversely to each other.
• The ICE U.S. Dollar Index DXY, +0.10%, a measure of the currency against a basket of six major rivals, rose 0.1%.
• Oil futures were slightly lower after Brent crude briefly traded above the $75-a-barrel threshold for the first time in two years. The U.S. benchmark CL00, -0.45% was down 0.4% at $72.85 a barrel on the New York Mercantile Exchange.
• Gold futures GC00, -0.44% edged lower, down 0.4% at $1,776.50 an ounce.
• In European equity trading, the pan-Continental Stoxx Europe 600 SXXP, +0.34% rose 0.1% and London’s FTSE 100 UKX, +0.51% gained 0.5%.
• In Asia, the Shanghai Composite SHCOMP, +0.80% rose 0.8%, the Hang Seng Index HSI, -0.63% fell 0.6% in Hong Kong, and Japan’s Nikkei 225 NIK, +3.12% jumped more than 3%.