Before the Bell: FOMC, Oil, Banks, and GameStop and AMC Return for an Encore

Premarket action on Wednesday had the three major U.S. indexes trading mixed. The Dow Jones industrials were up 0.06% and the S&P 500 up 0.03%, while the Nasdaq was 0.11% lower. Everyone is waiting on the Federal Reserve rate hike announcement.

Eight of 11 market sectors closed higher Tuesday. Energy (3.45%) and financials (2.54%) rose the most. Utilities (−2.05%) and real estate (−0.66%) posted the day’s biggest losses. The Dow closed up 0.98%, the S&P 500 up 1.3% and the Nasdaq up 1.58% on Tuesday.

Two-year Treasuries rose by 19 basis points to end Tuesday at 4.17%, and 10-year notes added 12 basis points to close at 3.59%. In Wednesday’s premarket, two-year notes were trading at around 4.15% and 10-year notes still at about 3.59%.

Tuesday’s trading volume was below the five-day average. New York Stock Exchange winners outpaced losers by 2,392 to 679, while Nasdaq advancers led decliners by nearly 3 to 1.

First Republic Bank (NYSE: FRC) rose 29.47% to lead S&P 500 winners on Tuesday. The still-struggling bank led the KBW Bank index to a gain of 5% on Tuesday. Two other hard-hit banks, though not included in the S&P 500 index, also posted solid gains: PacWest Bancorp (NASDAQ: PACW) rose almost 19% and Western Alliance Bancorp. (NYSE: WAL) added nearly 15%. KeyCorp, Comerica, Truist and U.S. Bancorp all posted solid gains though far smaller than First Republic’s.

Three of the five poorest S&P 500 performers were utilities. Natural gas supplier Atmos Energy Corp. (NYSE: ATO) dropped 4.07%, gas, electricity utility Alliant Energy Corp. (NASDAQ: LNT) dropped 3.26%, and CMS Energy Corp. (NYSE: CMS), another gas and electricity supplier, dropped 3.13%.

The odds that the Fed’s Open Market Committee (FOMC) will raise interest rates by 25 basis points Wednesday afternoon are close to 3 to 1. Two-year Treasuries have climbed back to their rate before the Credit Suisse implosion last week and longer-term notes have recovered as much or even a little more. For the moment, it seems, investors appear to believe the Fed and the Treasury Department have the situation in hand, if not entirely under control.

After markets closed Tuesday, the American Petroleum Institute reported that U.S. crude oil inventory rose by some 3.3 million barrels last week. Gasoline inventories fell by 1.1 million barrels, and distillates dropped by 1.84 million barrels. The U.S. Energy Information Administration reports “official” numbers after markets open Wednesday morning. The EIA reported a crude oil inventory increase of 1.55 million barrels last week.

West Texas Intermediate crude oil has closed below $70 a barrel for five straight trading sessions and traded at around $69.40 early Wednesday morning. The Biden administration has said it would buy oil to replace the drawdowns to the Strategic Petroleum Reserve when oil fell below about $70 a barrel. An administration official told Bloomberg last week that there is no rush to put out an offer sheet just yet.

Video game retailer GameStop Corp. (NYSE: GME) reported a surprise fourth-quarter profit after markets closed Tuesday. The stock, which had gained about 4.6% on the day, shot higher and shares traded at around $25.40 in Wednesday’s premarket, up nearly 44%. The company even beat the consensus revenue estimate. But is it realistic to believe that the company’s business is turning around?

A turnaround, it probably is not. Another short squeeze, it probably is. Short sellers took a big hit on GameStop stock Tuesday, down about $300 million on a mark-to-market basis, according to Ihor Dusaniwsky, managing director of S3 Partners. That means that shorts will be covering their bets Wednesday, and retail investors will be trying to drive the share price higher in order to wring more money out of short sellers. Good times.

Another short-squeeze favorite is AMC Entertainment Holdings Inc. (NYSE: AMC), and retail investors were pushing it hard Wednesday morning as well. Shares rose almost 3.3% on Tuesday, and premarket trading Wednesday added another 12%.

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