Stock markets gain modestly after weaker-than-expected services sector data and Federal Reserve remarks

Stock markets gain modestly after weaker-than-expected services sector data and Federal Reserve remarks

By Chibuike Oguh

NEW YORK (Reuters) -The S&P 500 and Nasdaq ended slightly up on Wednesday after data showing the U.S. services industry growth slowed further in March, while comments by Federal Reserve Chair Jerome Powell that focused on the need for more debate and data before interest rates are cut limited the advance.

Most of the major S&P 500 sectors advanced, led by materials and energy.

Powell reaffirmed in a speech on Wednesday that the Fed will stick to its wait-and-see approach as it considers when to start cutting rates given the continued strength of the U.S. economy and recent higher-than-expected inflation data.

Earlier on Wednesday, data from the Institute for Supply Management showed that non-manufacturing PMI declined for the second straight month to 51.4 in March, down from 52.6 in February, and weaker than analysts had expected, according to a Reuters poll.

A reading above 50 indicates growth in the services industry, which accounts for more than two-thirds of the economy, and the data still indicates the U.S. economy continues to expand, though at a moderate pace.

“It all has to do with the Fed and market expectations for a rate cut being pushed off. I think that’s really what is weighing on the market here and has been for at least a couple of days,” said Tim Ghriskey, senior portfolio strategist at Ingalls & Snyder in New York.

According to preliminary data, the S&P 500 gained 7.31 points, or 0.14%, to end at 5,213.12 points, while the Nasdaq Composite gained 37.27 points, or 0.23%, to 16,277.46. The Dow Jones Industrial Average fell 34.39 points, or 0.09%, to 39,135.85.

Traders were pricing in a 57% chance the Fed will cut interest rates by 25 basis points in June, according to CMEGroup’s FedWatch tool, down from about 64% a week ago.

In separate comments to CNBC on Wednesday, Atlanta Fed President Raphael Bostic said rates should likely not be reduced until the fourth quarter of this year.

“There’s this kind of yin and yang data scenario where you have some strong data that has some good-news-is-bad-news feel to it, meaning that what’s good news for the economy is bad news for potential policy path,” said James St. Aubin, chief investment officer at Sierra Investment Management in California.

Among decliners, Ulta Beauty dropped after the beauty retailer gave downbeat forecast at an industry conference. Shares of e.l.f. Beauty and Coty also fell.

Also, Intel shares dropped after the chipmaker disclosed $7 billion in operating losses for its foundry business in 2023, steeper than the $5.2 billion reported the year before.

(Reporting by Chibuike Oguh in New York; additional reporting by Caroline Valetkevitch in New York and reporting by Sruthi Shankar and Shashwat Chauhan in Bengaluru; Editing by Aurora Ellis)

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