Stocks Flat Despite Strong Economic Data as Fed Decision Looms

Investors Await Central Bank Clues Amid Tariff Uncertainty

Wall Street largely shrugged off positive economic indicators and strong corporate earnings Wednesday, with stock futures trading near flat as markets brace for the Federal Reserve’s latest policy announcement. Investors are keenly focused on potential future monetary policy shifts.

Economic Engine Still Running

The U.S. economy demonstrated robust growth in the second quarter, expanding at a 3% annual rate, surpassing economists’ expectations of 2.3%. This resilience comes despite ongoing concerns over tariffs. Several major companies, including Humana, Hershey, Kraft Heinz, and Mondelez, reported profits that exceeded analyst forecasts.

The Federal Reserve Takes Center Stage

The market’s muted reaction suggests investors are prioritizing the Federal Reserve’s upcoming monetary policy decision, due at 2 p.m. ET. While the Fed is widely anticipated to hold its benchmark lending rate steady within the 4.25% to 4.50% range, traders will scrutinize the accompanying statement for hints about future rate adjustments. Fed Chair Jerome Powell‘s press conference at 2:30 p.m. ET is also expected to draw significant attention.

“Powell has no easy job with the labor market showing some holes, though prices are still well above his sustainable 2% target and financial conditions are as easy as can be. It would suit Powell again to be non-committal ahead of the September meeting as there remains plenty of time between today and then for him to decide.”

—Peter Boockvar, Chief Investment Officer at One Point BFG Wealth Partners

Regional Banks in Focus

Anticipation surrounding the Fed announcement could trigger significant market volatility. Goldman Sachs has identified regional banks as a sector to watch closely. The firm notes that U.S. banking Exchange Traded Funds (ETFs) have experienced notable price swings on Federal Open Market Committee (FOMC) announcement days since 2023.

Specifically, the SPDR S&P Regional Banking ETF (KRE) has averaged a 2.5% move on Fed decision days over the past two years. Despite a recent rally in U.S. financial stocks, regional banks are currently lagging their typical correlation with broader market assets, trading at a 14% discount prior to the FOMC announcement, according to Goldman Sachs research.

Recent data shows that consumer confidence in the U.S. remains elevated, reaching 106.7 in May 2024, according to the Conference Board. This figure indicates sustained optimism among households, a factor that could influence the Federal Reserve’s policy considerations. The central bank is balancing this optimism against concerns that tariffs could potentially fuel inflation.