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Market Snapshot: Dow, S&P 500 set for muted rise as stock market gears up for Fed meeting

Futures on U.S. stock benchmarks on Monday were inching higher, with the S&P 500 on track to attempt a third straight record closing high, as investors ready for an important meeting of the Federal Reserve this week that could help investors assess how the central bank views evidence of surging inflation against data showing slack in the job market amid the recovery from the COVID pandemic.

The Fed’s two-day meeting commences Tuesday.

How is the stock market trading?

On Friday, the Dow
DJIA,
+0.04%

retreated 0.8% for the week, snapping a 2-week win streak, but off 0.86% from its May 7 record closing high at 34,777.76. The S&P 500
SPX,
+0.19%

advanced 0.4% for the week to mark its 28th record close of 2021, the Nasdaq Composite Index
COMP,
+0.35%

ended the week with a 1.9% gain, off 0.5% from its April 26 record closing high at 14,138.78.

What’s driving the market?

What once proved illusory for the Fed years ago may now be transitory, and now it is time to talk about talking about inflation.

By the middle of the week, investors may finally have a clearer sense of the U.S. central bank’s game plan for confronting inflation and normalizing policy, if they deem pricing pressures temporary.

Read: Here’s what the market wants—and doesn’t want—to hear from Powell at this week’s Fed meeting

“Wednesday’s statement from the Federal Reserve isn’t expected to feature any fireworks, but it is an important meeting as it will offer clues about the reaction function of the central bank to rising inflation,” wrote Neil Wilson, chief market analyst at Markets.com. “We know the Fed is happy to let inflation run a little hot over the summer as it pins everything on its employment mandate,” the analyst said.

Presently, 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 the size 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. 

Meanwhile, leaders of the Group of Seven championed a 15% global minimum tax rate support, as well as continued fiscal stimulus to help economies dig out of the COVID pandemic.

Which companies are in focus?
  • Novovax Inc.’s
    NVAX,
    +2.31%

    experimental COVID-19 vaccine was 90.4% effective at preventing symptomatic disease in adults in a large clinical trial, the company said, results that move the shot a step closer to global use.

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