U.S. stocks eke out gains as investors await Fed meeting this week

What drove markets

Stocks failed to hold on to much of their earlier gains on Monday, as investors looked toward a busy week of central-bank action. However, the S&P 500’s information-technology sector still finished up by 0.5% — outpacing the gains seen for the big three equity indexes.

The S&P 500 had dropped 1.2% on Friday after last week’s stronger-than-expected economic data, along with rising oil prices, raised concerns that inflation might stay stubbornly above the Federal Reserve’s 2% target.

While the Fed is likely to hold rates steady in the current range of 5.25%-5.5% on Wednesday, policy makers “would be well-advised to move forward with additional rate hikes this year to tackle the still-elevated levels of inflation” given the recent uptick in price gains, said economist Lauren Henderson of Stifel, Nicolaus & Co. in Chicago.

“If the Fed is serious and wanting to maintain its credibility with the markets, then it would be in the Fed’s best interest to move forward with at least one rate hike and possibly two before the start of the new year,” she told MarketWatch.

U.S. crude-oil futures
CL.1,
+0.84%
settled above $90 a barrel on Monday, the most expensive since at least November, stoking worries about the potential inflationary impact as well as a drag on growth. The recent rise in energy prices is likely to be reflected in inflation data in coming months and to complicate the Fed’s job, according to Henderson.

See: Janet Yellen says she expects soaring oil prices to stabilize

Clues to how central banks view these developments will be provided this week. The Federal Reserve will deliver its policy decision on Wednesday, followed by the Bank of England on Thursday and the Bank of Japan on Friday (local times).

Read: U.S. economy is trending in the Fed’s direction, so expect Powell to tread carefully next week

Although the expectations are for no move by the Fed, “what could move the markets would be any unexpected changes in the language of the statement or the Summary of Economic Projections, which would be in the rate or inflation projections,” said Scott Buchta, the Franklin, Tenn.-based head of fixed-income strategy at Brean Capital.

“We’re not expecting any major changes to come out of this,” Buchta said. “However, now that policy makers are at or near the end of their rate-hike cycle, they’re going to set up the expectations and messaging for the market over the next year or two.”

He said the Fed’s projections are still likely to show one more rate hike this year, but the “interesting thing” will be if the prior forecast for four quarter-point rate cuts in 2024 remains in place or “if you get an unexpected change there that could move markets.”

See: Powell could still hammer U.S. stocks on Wednesday even if the Fed doesn’t hike interest rates

The stocks of the Big Three automakers — General Motors Co.
GM,
-1.80%,
Ford Motor Co.
F,
-2.14%
and Chrysler owner Stellantis NV
STLA,
-1.61%
— finished lower Monday, as workers continued their strike for higher pay and other benefits. The strike started early Friday after the carmakers failed to reach an agreement with the United Auto Workers union. Tesla Inc. shares
TSLA,
-3.32%
finished 3.3% lower after failing to find the support that had been expected from the strike.

Live blog: UAW set to resume talks with Ford, GM, Stellantis

Home builder confidence fell in September to the lowest level in five months as buyer demand waned on the back of persistently high mortgage rates. The National Association of Home Builders’ monthly confidence index fell 5 points in September, to 45.

Companies in focus

• Apple Inc.
  AAPL,
  +1.69%
  shares ended up by 1.7% after the iPhone maker released its big software update, iOS 17.
• U.S.-listed shares of chip-design company ARM Holdings PLC
  ARM,
  -4.53%
  closed down by 4.5% after last week’s successful trading debut. Arm began trading Thursday and closed Friday at $60.75, 19% above the $51 IPO price. “While expectations that Arm will be a beneficiary from [artificial intelligence] growth may be adding a premium to the share price, we believe it is too soon to declare them an AI winner,” Bernstein’s Sara Russo said in a Monday note to clients.
• Class A shares of DoorDash Inc.
  DASH,
  -0.01%
  finished little changed at $80.92 even after Mizuho upgraded the stock to buy.
• Clorox Co. shares
  CLX,
  -2.39%
  ended down by 2.4% after the cleaning- and household-products company said a cybersecurity attack identified last month will have a “material” impact on fiscal first-quarter results.

Jamie Chisholm and Joy Wiltermuth contributed.