U.S. equities and stock exchange traded funds slightly dipped Monday as investors prepped for the widely anticipated Federal Reserve interest rate hike later this week.
The S&P 500 Index, along with related funds including the SPDR S&P 500 ETF (NYSEArca: SPY), iShares Core S&P 500 ETF (NYSEArca: IVV) and Vanguard 500 Index (NYSEArca: VOO), were 0.1% lower Monday.
“It’s the calm before the storm,” David Lafferty, chief market strategist at Natixis Global Asset Management, told the Wall Street Journal. “The market is still coalesced around three tightenings this year, but there’s certainly room for four.”
With the Federal Reserve meeting this week, the Federal Open Market Committee meeting announcement will be revealed Wednesday when many market observers expect the central bank to raise borrowing costs for the first time this year – fed-funds futures show options traders are pricing in a 95% chance of a rate hike.
Meanwhile, analysts will be sifting through the minutes to gain a clearer picture on how aggressively the Fed will act with its monetary policy in the year ahead.
“Markets fully expect a rate rise, so market reaction is likely to be muted unless the Fed disappoints which would lead to lower bond yields and a lower dollar, although that is not our expectation,” Mike Bell, global market strategist at JPMorgan Asset Management, said, according to Bloomberg. “All attention is likely to be focused on the press conference to see whether a more hawkish tone is struck, if so yields and the dollar could move higher still.”
Along with the Fed, the Bank of Japan, Bank of England and the Swiss National Bank are also set to hold meetings this week.
The equities markets were also being dragged down Monday by weakness among drug producers after a report by the Congressional Budget Office on costs associated with the Republican plan to replace the Affordable Care Act, or Obamacare, could add to opposition to the proposal, reports Yashaswini Swamynathan for Reuters.
“There is a lot of uncertainty in the healthcare sector,” Brant Houston, managing director at CIBC Atlantic Trust Private Wealth Management, told Reuters. “Until this whole debate plays out, investors are going to be a little bit concerned about how these stocks will perform.”
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