Wall Street struggles for direction on rate hike jitters

© Reuters. FILE PHOTO: Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., August 22, 2022. REUTERS/Brendan McDermid

By Devik Jain and Sruthi Shankar

(Reuters) - U.S. stock indexes struggled for direction on Wednesday and were set for sharp monthly declines as investors worried how much the Federal Reserve will hike interest rates to tame inflation, while chipmakers slid after tepid forecasts from Seagate and HP Inc (NYSE:HPQ).

The three main indexes were on pace for their worst August performance since 2015, with the tech-heavy Nasdaq down 3.9% after Fed Chair Jerome Powell's blunt and hawkish remarks on Friday about keeping monetary policy tight "for some time" quashed hopes of more modest rate hikes.

Meanwhile, mixed economic data signaling an easing of price pressures and a tight labor market also weighed on investors' minds heading into September, which is typically a weak month for stock market returns.

"The conundrum facing markets is that the Federal Reserve either needs to raise interest rates much faster, or inflation must start to decline at a much faster clip," Michael Landsberg, chief investment officer, Landsberg Bennett Private Wealth Management said in a note.

"We do not believe the bottom is in for stocks ... while many investors are focused on a retest of the mid-June lows, we believe the market has the potential to fall below that threshold."

Data earlier in the day showed ADP private payrolls increased by 132,000 jobs in August, falling short of economists' forecast of job growth of 288,000, according to a Reuters poll.

It came ahead of the more comprehensive and closely watched jobs data on Friday which is expected to show nonfarm payrolls rose by 300,000 last month after recording a 528,000 increase in July.

"At this point, any softening in labor market, housing data is something that the market will embrace because of the implication for the Fed," said Ross Mayfield, investment strategy analyst at Baird in Louisville, Kentucky.

"Markets are finding a level right now, we will have to wait for the next inflation and nonfarm payroll print to get a better sense."

The benchmark S&P 500 is up 9.7% from its mid-June lows but remains in the bear market after plummeting earlier this year.

At 12:12 p.m. ET, the Dow Jones Industrial Average was down 20.43 points, or 0.06%, at 31,770.44, the S&P 500 was up 2.26 points, or 0.06%, at 3,988.42, and the Nasdaq Composite was up 17.32 points, or 0.15%, at 11,900.46.

Chipmakers slid 1.1% after Seagate Technology Holdings slashed its first-quarter earnings expectations, citing macroeconomic concerns that are forcing cloud companies and PC makers to cut inventory levels.

Shares of Seagate dipped 2.9%, while HP Inc dropped 6.1% after it forecast downbeat quarterly and full-year profit on slowing PC sales.

Snap Inc (NYSE:SNAP) rose 7.2% after saying it will cut 20% of staff, restructure its advertising sales unit and shut down some projects to focus on improving sales and number of Snapchat users.

Shares of other social media companies Pinterest (NYSE:PINS) and Meta Platforms added 3.9% and 4.4%, respectively.

Netflix Inc (NASDAQ:NFLX) gained 2.9% after it hired two of Snap Inc's top executives to help the streaming giant with its advertising-supported tier plan.

Chewy (NYSE:CHWY) Inc slid 9% after the online pet supplies retailer cut its full-year 2022 sales outlook, while PVH Corp (NYSE:PVH) fell 9.7% as the Calvin Klein owner slashed 2022 profit outlook.

Bed Bath & Beyond Inc (NASDAQ:BBBY) slumped 20.8% after saying it would close 150 stores, cut jobs and overhaul its merchandising strategy in an attempt to turn around its money-losing business.

Declining issues outnumbered advancers for a 1.10-to-1 ratio on the NYSE and for a 1.01-to-1 ratio on the Nasdaq.

The S&P index recorded no new 52-week high and nine new lows, while the Nasdaq recorded 11 new highs and 132 new lows.