NEW YORK — U.S. stocks are trading along the flatline in early trading as Wall Street awaits the Federal Reserve’s decision this afternoon on whether to hike interest rates for the first time in almost 10 years.
Traders appear to be waiting for the Fed’s decision before making any big directional bets in the stock market today.
“Markets have been moving higher leading up to the (Fed) event, but many on the Street are split” on whether the Fed will pull the trigger and boost rates, Josh Selway, an analyst at Schaeffer’s Investment Research said in a report to clients.
In early trading the Dow Jones industrial average is down 9 points, or roughly flat. The Standard & Poor’s 500 stock index is unchanged and the Nasdaq composite was up 2 points.
Traders in Europe were also playing it safe, with the broad Stoxx 600 index down 0.2%. Shares of the CAC 40 in Paris were unchanged and the German DAX was down 0.2%.
The growing consensus on Wall Street is that the Fed will delay a rate hike until its October or December meeting, as the central bank assesses the fallout from the recent global market turbulence and slowing growth in China, the world’s second-biggest economy.
The futures market is pricing in a 25% chance of the Fed hiking rates today. The last time the Fed raised rates was June 2006. The Fed has pegged short-term rates at 0% since late 2008.
Still, markets are on edge as it’s a close call as to what the Fed does.
“Today is the first day with a real probability of a Fed hike since 2006,” Paul Hickey, co-founder of Besoke Investment Group told clients in a note this morning that summed up the magnitude and importance of today’s Fed decision.
Bolstering the case for a rate hike is an improving U.S. economy and a strengthening labor market. Hurting the case for an increase is market instability and global growth fears.
There are no shortage of scenarios as to what the Janet Yellen-led Fed could do: they could stand pat and keep rates pegged at 0% to 0.25% and explain their reasoning and new timetable in their policy statment at 2 p.m. ET or via Yellen’s 2:30 p.m. press conference. They could nudge rates up a quarter of a percentage point, or 0.25%, but provide market-friendly language that reiterates its promise to hike rates slowing and gradually.
“But the bottom line,” Hickey says, “is that nobody knows what’s about to happen.”
What Wall Street is hoping the Fed doesn’t do is surprise the market and cause volatlity to skyrocket, althought that is not the way Yellen has operated since taking over for ex-Fed chairman Ben Bernanke.
“(Investors) trust that the Fed will do what it can do to avoid shocking an already agitated market,” investment research firm Strategas Research Partners told clients in a note. “Yet concern abounds that no matter what the Fed does, further irritation may be unavoidable, even if it’s only temporary.”
In Asia, shares traded mix, with Japan’s Nikkei 225 rising 1.4%, Hong Kong’s Hang Seng index falling 0.5% and stocks in mainland China’s Shanghai composite index dipping 2.1%.
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