By Joy Wiltermuth and Mark DeCambre
A rally in tech stocks helped lift the Nasdaq Composite to its first record close since late April and the S&P 500 to eke out its 29th of the year, as investors prepared for an important meeting of the Federal Reserve this week.
The rate-setting gathering could help investors assess how the central bank views evidence of surging inflation against data showing slack in the job market during the COVID pandemic recovery.
The Fed’s two-day meeting commences Tuesday.
How did the stock market trade?
The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -0.38% fell 85.85 points, or 0.3%, to end at 34,393.75, but off the session’s low of 34,211.54.
The S&P 500 index /zigman2/quotes/210599714/realtime SPX -1.04% rose 7.71 points, or 0.2%, closing at 4,255.15, after flipping positive in the final 15 minutes of trade.
The Nasdaq Composite Index /zigman2/quotes/210598365/realtime COMP -1.59% rose 104.72 points to close at a record 14,174.14, a gain of 0.7%, besting its previous April 26 record closing high of 14,138.78.
What drove the market?
What once proved illusory for the Fed years ago may now be transitory, and now it is time to put talking about inflation on the agenda.
By the middle of the week, investors finally may have a clearer sense of the U.S. central bank’s game plan for confronting inflation and normalizing policy, including whether Fed officials still deem pricing pressures temporary.
“It’s all about interest rates and any possible change in the language from the Federal Reserve,” said Kent Engelke, chief economic strategist, Capitol Securities Management, of stock-market trading Monday.
Engelke also said many still expect the Fed to keep rates near zero and maintain its current pace of bond buying for some time, which may have helped lift technology stocks Monday, up 1%, as a component of the S&P 500 index.
The U.S. central bank is buying $80 billion of Treasurys and $40 billion of mortgage-backed securities each month, while keeping benchmark interest rates between 0% and 0.25%.
Federal Reserve Chairman Jerome Powell and fellow policy makers are expected to discuss the eventual tapering of that $120 billion a month asset-purchase program, which could prove delicate as they hope to avoid roiling the market in the process.
It is expected that the Fed’s projections of interest rates in the future, the so-called dot-plot, may show a shift forward for the first rate increase to come during 2023. At the moment, the Fed shows no rate increases until 2024 at the earliest. Back in March, the Fed penciled in a 2.2% core rate for the personal consumption expenditure index.
While that may rise, the Fed won’t move the core rate for 2022 much higher, a signal that it still believes the price gains seen in the past few months reflects “largely transitory” factors.