What’s driving markets?

Stock indexes were up early afternoon Tuesday in New York in a choppy session of trade.

The market’s in a “tug-of-war between those who think the Federal Reserve will have to tighten a lot and kill the economy” versus those who believe the Fed won’t have to do as much as what’s already “priced in” for this year, said Brent Schutte, chief investment officer at Northwestern Mutual Wealth Management Co., in a phone interview Tuesday.

Schutte, who expects the Fed will announce on Wednesday that it’s raising its benchmark interest rate by 50 basis points, said that “financial conditions are already becoming more restrictive” as the market has already priced in “a substantial amount of tightening” by the central bank this year. “I’m in the camp that believes the Federal Reserve won’t have to tighten as much as what the markets currently have priced in,” he said.

The Federal Open Market Committee on Tuesday kicked off a two-day meeting that is expected to end with its first half percentage point rate hike since 2000, as well as a plan to reduce the size of its balance sheet. Fed Chair Jerome Powell will hold a press conference Wednesday afternoon.

“We expect Powell to keep the door firmly open to an aggressive pace of hikes during the remainder of the year,” said Matthew Ryan, senior market analyst at Ebury. “While Powell won’t pre-commit to rate increases at specific meetings on Wednesday, he will almost certainly reiterate that rates could be raised at every meeting in 2022.”

Read: Fed on track for biggest rate hike since 2000

Both stocks and bonds suffered a miserable April, with the S&P 500 sliding nearly 9% and the JPMorgan U.S. Aggregate Bond ETF
JAGG,
+0.33%
dropping almost 4%, according to FactSet data.

On Monday stocks rebounded from losses seen earlier in the session after the 10-year Treasury yield
TMUBMUSD10Y,
2.950%
touched 3% for the first time since December 2018, but failed to press above the threshold, leading some investors to argue that the Treasury selloff may have run its course at least for the short term. The 10-year yield was down around 6 basis points Tuesday afternoon at 2.94%.

Market bears argued that any respite is likely to be short-lived, though conditions could set the stage for a volatile near-term bounce.

“On the positive side, the market is currently so oversold, any good news could lead to a vicious bear market rally. We can’t rule anything out in the short term but we want to make it clear this bear market is far from completed, in our view,” wrote analysts led by Morgan Stanley’s Mike Wilson, in a note.

They said the S&P 500 could fall as low as 3,460, the 200-week moving average, if forward 12-month earnings per share start to fall on margin and/or recession concerns.

Also read: ‘You don’t want to own bonds and stocks’ in this environment, says legendary investor who called ’87 crash

Meanwhile the U.S. corporate earnings reporting season rolls on with results from companies including Pfizer
PFE,
+1.78%,
Biogen
BIIB,
+1.23%,
and after the close, Advanced Micro Devices
AMD,
+1.76%
and Starbucks
SBUX,
-0.97%.

Economic data released Friday underlined a tight labor market. U.S. job openings climbed to a record 11.5 million in March, while the number of people quitting also hit an all-time high.

Meanwhile, orders for U.S. manufactured goods rose by a stronger-than-expected 2.2% in April, the Commerce Department said Tuesday.

Market participants might also be discussing the political, and therefore economic, consequences of the reported draft ruling by the U.S. Supreme Court that would overturn the landmark Roe vs. Wade decision that legalized abortion.

Which companies are in focus?

• Biogen Inc. said Tuesday that it is conducting a search to replace CEO Michel Vounatsos, who will stay in his role unless a successor is named. The announcement was made in the company’s first-quarter earnings, which saw Biogen missing Wall Street’s expectations for earnings and revenue. Shares rose 1.2%.

• Shares of Pfizer Inc. were up 1.6% after the drug maker posting better-than-expected first-quarter earnings on Tuesday, boosted by sales of its COVID-19 vaccine and antiviral Paxlovid.

• Chegg Inc. shares plummeted almost 30% after the online-education company slashed an annual forecast provided three months ago.

• Clorox Co.
  CLX,
  +3.08%
  swung to a quarterly profit and reported stronger-than-expected 2% sales growth in the March quarter, but cut profit projections for the year, citing commodity and manufacturing and logistics costs. Shares rose 3.7%.

How other assets are faring?

• The ICE U.S. Dollar Index
  DXY,
  -0.24%,
  a measure of the currency against a basket of six major rivals, was down 0.2%.

• Oil futures pulled back, with the U.S. benchmark
  CL.1,
  -2.02%
  down 1.9% at $103.14 a barrel. Gold futures
  GC00,
  +0.40%
  rose 0.4% to trade at $1,870.80 an ounce.

• Bitcoin
  BTCUSD,
  -0.26%
  fell 0.7% to around $38,200.

• In European equities, the Stoxx Europe 600
  SXXP,
  +0.53%
  closed 0.5% higher. London’s FTSE 100
  UKX,
  +0.22%
  rose 0.2%.

• In Asia, the Hang Seng Index
  HSI,
  +0.06%
  edged up 0.1% in Hong Kong, while many other Asian markets were closed for a holiday.

—Steve Goldstein contributed to this report.