The stock market had a hard time finding direction on Wednesday, with traders assessing comments from central bank chiefs about the outlook for the economy and interest rates.

The S&P 500 closed almost flat and above the Fibonacci 38.2 per cent retracement level of about 3,815 that investors have been closely watching. Quarterly rebalancing of portfolios contributed to the market choppiness. Bonds and the dollar gained.

Federal Reserve Chair Jerome Powell said the US is in “strong shape” and “well positioned to withstand tighter monetary policy.” He reiterated the commitment to bring inflation down, adding that the process is likely to cause some “pain.” Powell spoke on a panel with European Central Bank President Christine Lagarde and Bank of England Governor Andrew Bailey. 

Volatility has gripped markets this year on concern that a hawkish Fed could tip the economy into a recession. The S&P 500 is on course for its worst quarter since March 2020 amid a surge in Treasury yields. The US central bank was in denial about inflation and moved too slowly in trying to quell rising prices. That has put it on a trajectory to create a recession, if it hasn’t already done so, according to Rob Arnott at Research Affiliates.

“The froth certainly appears to have been taken out of the financial markets by this year’s stock-and-bond pullback,” said James Solloway, chief market strategist at SEI. “That’s the good news. The bad news is that an economic recession and a corresponding decline in earnings might not yet be fully priced into markets.”

The bond market shifted to price in a half-point rate cut in the Fed’s benchmark rate at some point in 2023, as traders upped their bets on a US recession eventually halting the central bank’s aggressive tightening campaign.

Fed Bank of Cleveland President Loretta Mester said officials must not be complacent about increases in long-term inflation expectations and should act forcefully to curb price pressures. Data Wednesday showed US consumer spending expanded in the first quarter at the softest pace of the pandemic recovery, marking a surprise sharp downward revision that suggests an economy on weaker footing than previously thought.

Chief financial officers are growing increasingly downbeat about the economy this year, with a measure of sentiment falling to the lowest in nearly a decade. Respondents reduced their expectations for growth, according to the latest quarterly results of The CFO Survey, a collaboration of Duke University’s Fuqua School of Business and the Fed Banks of Richmond and Atlanta.

“As pre-earnings announcements and analyst revisions hit the tapes, we should have a sense of whether the business side of the equation agrees with what consumers are saying,” said Quincy Krosby, chief equity strategist at LPL Financial.

In corporate news, Peloton Interactive Inc. sank after UBS reaffirmed its sell rating on the at-home fitness company, citing negative user trends. Carnival Plc slumped as Morgan Stanley warned that the cruise vacation firm’s shares could lose all their value in the event of another demand shock. Bed Bath & Beyond Inc. plunged as the home-goods retailer reported disappointing results.

Some of the main moves in markets:

Stocks

• The S&P 500 was little changed as of 4 p.m. New York time
• The Nasdaq 100 rose 0.2 per cent
• The Dow Jones Industrial Average rose 0.3 per cent
• The MSCI World index fell 0.6 per cent

Currencies

• The Bloomberg Dollar Spot Index rose 0.5 per cent
• The euro fell 0.7 per cent to US$1.0441
• The British pound fell 0.5 per cent to US$1.2117
• The Japanese yen fell 0.3 per cent to 136.59 per dollar

Bonds

• The yield on 10-year Treasuries declined eight basis points to 3.09 per cent
• Germany’s 10-year yield declined 11 basis points to 1.52 per cent
• Britain’s 10-year yield declined eight basis points to 2.38 per cent

Commodities

• West Texas Intermediate crude fell 2.2 per cent to US$109.31 a barrel
• Gold futures were little changed