Wall St slips for 4th straight day as Fed fears persist

WALL ST SLIPS FOR 4TH STRAIGHT DAY AS FED FEARS PERSIST (1630 ET/2030 GMT)

Wednesday was another risk-off day on Wall Street as stocks fell for a fourth straight session to cap off the deepest August decline in all three major indexes since 2015.

The S&P and Nasdaq fell harder in January, April and June, a reminder of the tough year investors have already faced as they approach September, typically the weakest month of the year.

The benchmark S&P 500 has stumbled since hitting a four-month high in mid-August, sliding more than 8% through Wednesday's close.

For the month, the S&P 500 fell 4.24%, the Dow lost 4.06% and Nasdaq dropped 4.64%.

Adding to this week's suspense is whether the Federal Reserve raises interest rates next month by market expectations of a 75 basis point hike or just 50 bps. The former might signal a bigger slowdown of the economy, while the latter a potential pivot by the Fed toward a more market-friendly policy stance.

To be sure, the week before the Labor Day holiday on Monday is often one of the quietest of the year, where news has a magnified impact on market moves, said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia.

"I just didn't see a lot this week to be optimistic about as we go into the holiday weekend and then come out of the weekend expecting a burst of positivity. I just don't see that," he said.

"All the Fed governors who are talking are hanging tough about the need to get rid of inflation, and if that means we're going to have higher interest rates, we're going to have higher interest rates for longer," Tuz said.

Ten of the 11 S&P sectors fell, led by a 1.2% decline in materials, while communication services was the strongest performer, ending the day unchanged.

Semiconductors, Dow transports and small caps all fell on a day marked by investor caution after strong labor data on Tuesday suggested the Fed will hike rates higher and for longer to get inflation down to its 2% target.

The market will now look to Friday when the Bureau of Labor Statistics releases its August U.S. labor market report. The data, along with inflation numbers due out later in September, will influence the Fed's rate-hiking decisions.

Below is a snapshot of closing market prices:

(Herbert Lash)

NEW ADP METHODOLOGY, SLOWING LABOR MARKET NARRATIVE (1443 EDT/1843 GMT)

Investor reactions to the new ADP private payrolls report were mixed on Wednesday as market participants also waited for the August non-farm payrolls report from the Bureau of Labor Statistics due at week's end.

Everybody, of course, was laser focused on how the data will influence the Federal Reserve's rate-hiking decisions.

The ADP National Employment report, the first compiled under new methodology, showed U.S. private payrolls increased moderately in August by 132,000 jobs, after increasing by 268,000 the prior month.

"Our data suggests a shift toward a more conservative pace of hiring, possibly as companies try to decipher the economy's conflicting signals," said Nela Richardson, chief economist at ADP. "We could be at an inflection point, from super-charged job gains to something more normal."

The numbers were at odds with government data on Tuesday that continue to point to strong demand for workers amid a very tight labor market. Tuesday's JOLTs data showed 11.2 million job openings on the last business day of July, with two openings for every unemployed person.

Jeffrey Roach, chief economist for LPL Financial said Wednesday's ADP report "may be a false alarm for Friday" but that both sources may support the narrative that "the labor market is slowing as businesses cut back on hiring during this uncertain period of slow growth and high inflation." Peter Essele, head of portfolio management at Commonwealth Financial Network, was particularly interested in the decline in professional and business service employment in ADP's report, which was "the first negative month in two years from a sector that has experienced strong growth throughout the recovery."

This downward trend suggests a slowing economy and job market, according to Essele who views this as "a worrying sign for investors, especially after Powell's commentary last week that the Fed will maintain course with aggressive hikes to combat inflation."

But since August was the first month where ADP released its data under the new methodology, job market watchers such as Daniel Silver at JPMorgan are carefully watching how its data relates to other measures of employment, now and in the months ahead.

Pantheon Macroeconomics chief economist, Ian Shepherdson, was wary of comparing any consensus expectations with August's ADP report as it "had released no historical data for its new methodology, so forecasts were based on… nothing."

Still, since Wednesday is the last trading day of August, Commonwealth's Essele cautions that "if the current trend of softening economic reports continues, September could be a rocky month for investors, reaffirming its position as the worst calendar month for markets historically."

With nothing but economic uncertainty in the air, Wall Street stocks had trouble deciding which direction they wanted to travel on Wednesday with the major indexes seesawing between positive and negative territory.

(Sinéad Carew)

CHIP STOCKS DROP AFTER HP, SEAGATE WARN ON DEMAND (1220 ET/1620 GMT)

Chip stocks are adding to recent deep losses on Wednesday after dismal quarterly reports and forecasts from HP Inc and Seagate Technology Holdings added to fears of an industry downturn.

The Philadelphia semiconductor index dropped more than 1%, bringing its loss since mid-August to almost 13%.

Late on Tuesday, Seagate slashed its quarterly earnings outlook as an economic slowdown hits orders for the company's hard disks and server storage products from enterprise customers.

Also late on Tuesday, HP Inc reported weak quarterly results and gave a similarly disappointing forecast, including weaker demand for personal computers.

Shares of Seagate dropped 3% while HP fell more than 6%.

"Inflation increased in many parts of the world, and this led to lower consumer spending for our product categories. And demand in Europe worsened against the backdrop of the Russia-Ukraine war," HP Chief Excutive Enrique Lores told analysts during a conference call.

Those weak reports helped push Seagate rival Western Digital down 2.2%.

With consumer demand taking a hit from higher interest rates and economies losing steam in many parts of the world, a number of investors expect the chip industry is heading for its first global sales decline since 2019.

Advanced Micro Devices and Nvidia, which in recent weeks have also given weak outlooks, both fell more than 2%.

The chip index has is now down 32% year to date.

(Noel Randewich)

SOME SEE INFLATION ON THE MEND IN LIFT FOR WALL STREET (1155 ET/1555 GMT)

There are still some investors on Wall Street who believe inflation will slow a lot faster than Federal Reserve chair Jerome Powell has implied. This view seemed to give stocks some early morning support before they drifted lower and then turned higher again.

Many investors are concerned the Federal Reserve will squeeze the holy hell out of the U.S. economy to tame inflation, fears that were given extra fuel on Tuesday from data suggesting that a tight labor market would force interest rates higher and faster.

The indexes struggled to find a direction on Wednesday, with S&P 500 and Nasdaq rising early morning trade before they headed south, along with the Dow Industrials and then pared losses again.

Six of the 11 major S&P 500 sectors were higher, with gainers led by communication services, while Materials and consumer discretionary were the biggest decliners. Growth and value indexes were both choppy, while small caps and Dow Transports were lower and semiconductors underperformed.

Bitcoin was above the $20,000 level, up 1.45% in a sign of at least some risk appetite. The dollar was lower and the 10-year U.S. Treasury's yield was little changed.

Jamie Cox, managing partner at Harris Financial Group in Richmond, Virginia said that markets misread the Conference Board's report on consumer confidence as a sign that the Fed will hike rates more than expected

"The Fed is prone to mistakes and there is a very good chance that inflation comes down for reasons other than rate increases," Cox said in a report issued on Tuesday.

In fact, housing data on Tuesday suggest shelter costs in core CPI and PCE inflation already are coming off the boil.

Bill Adams, chief economist for Comerica Bank in Dallas pointed to the FHFA House Price Index increase of 0.1% in June vs the 0.8% consensus and down from 1.3% the prior month, which was revised lower from the previously reported 1.4%.

Much slower house price increases or even declines will pass through to slower CPI/PCE inflation on a one- to three-quarter lag, Adams wrote on Tuesday.

Second-quarter house sales and construction slowed sharply and will likely continue at much lower levels the rest of this year and into 2023 than during the 2020-2021 boom, he said.

Slower house price increases is part of what the Fed wants to see before they will be convinced that inflation is coming under control. They also are looking for slower increases in total inflation, core inflation and wages, Adams said.

Here's a snapshot of mid-morning market prices:

(Herbert Lash)

BED BATH & BEYOND'S AUGUST ROLLER COASTER GIVES SHORTS SOME REPRIEVE (1039 ET/1439 GMT)

This August has been a roller coaster month for both retail investors and short sellers covering the embattled retailer Bed Bath & Beyond.

Shares of the company, down 22.8% on Wednesday, were still up about 86% so far this month and on track for their biggest monthly gain since January 2021. However the stock last trading at $$9.35 was well below its most recent intraday high of $30 reached on August 17.

The stock has seen dramatic volatility this month with billionaire Ryan Cohen's sale of his 9.8% stake sending shares crashing following a meme-fueled rally.

Bed Bath & Beyond shorts were down $545 million in mark-to-market losses as the retailer hit its recent high of $23.08 on August 17 but have since recouped roughly $330 million of those losses as the stock lost ground, according to Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners.

"Retail long shareholders may be holding onto their shares with diamond hands, but there are apparently a ton of paper hands trading in and out of this name all day long," added Dusaniwsky. "Momentum and trend day traders and institutional traders are active in this meme stock."

While short covering has aided the recent uptick in stock prices, long buying and selling were the main reason behind the company's volatile price moves, he added.

Bed Bath & Beyond was the most-shorted consumer discretionary stock with 38.61% short interest as of mid-August, according to the latest data analysis from S&P Global Market Intelligence.

On Wednesday, the retailer's shares were falling after it announced deals for more than $500 million in new financing and plans to close 150 stores, cut jobs and overhaul its merchandising strategy in an attempt to turn around its money-losing business. The retailer also announced a plan to raise money by issuing new shares.

(Bansari Mayur Kamdar, Ankur Banerjee)

WALL ST INDICATES HIGHER OPEN AFTER 3-DAY SELL-OFF (0905 EDT/1305 GMT)

With investors closely watching economic data for clues as to the Federal Reserve's next rate hiking moves, S&P 500 futures were indicating a higher open on Wednesday.

U.S. private payrolls increased by 132,000 jobs in August after rising 270,000 in July, the ADP National Employment Report showed on Wednesday.

On Tuesday U.S. stocks closed lower for a third straight session after a rise in job openings appeared to give the Fed more reasons to maintain its aggressive path of interest rate hikes to combat inflation.

Fed Chair Jerome Powell on Friday reaffirmed the central bank's determination to raise rates even in the face of a slowing economy.

Here is the premarket U.S. snapshot:

(Sinéad Carew)

FOR WEDNESDAY'S LIVE MARKETS' POSTS PRIOR TO 0900 EDT/1300 GMT - CLICK HERE: