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Stocks fell Tuesday as the Federal Reserve kicked off a key two-day policy meeting, with investors worried the central bank may not reduce interest rates this year.
The Dow Jones Industrial Average lost 240 points, or 0.6%. The S&P 500 slipped 0.1%, while the Nasdaq Composite added 0.2%.
The bulk of S&P 500 stocks traded lower on the day, with just about 100 names in the index on track for a gain. At the New York Stock Exchange, roughly 1,900 stocks were lower, while only 688 advanced.
Concerns about a slowing economy led financial names such as American Express and JPMorgan Chase lower. Shares of electric vehicle manufacturer Tesla also fell more than 3% ahead of a vote to reinstate a pay package for CEO Elon Musk.
On Tuesday, investors appeared to be taking profits in AI star Nvidia and rotating into emerging AI play Apple, which just unveiled new features that could spark a wave of iPhone upgrades, analysts said. The iPhone maker hit a record, jumping 6%. Nvidia shed 1%.
The Fed meeting will conclude on Wednesday with an interest rate policy decision and a subsequent press conference featuring Federal Reserve Chair Jerome Powell. Although some indicators show signs of a slowing economy, investors have grown increasingly concerned this will not be enough to incentivize the U.S. central bank to cut rates in 2024.
Marko Kolanovic, JPMorgan’s top equity strategist, warned the chances of a rate cut have decreased following the stronger-than-expected May jobs report. “We see diminished prospects for easing this year, and now expect the first Fed cut only in November,” he wrote.
Fed funds futures were indicating no chance of a cut at this week’s meeting or at the following one in July, according to CME’s FedWatch Tool. However, it’s a coin toss whether the central bank will lower rates in September. Investors are also pricing in a 66% chance of a rate cut in November.
“Overall, the market has begun to prepare a bit for a little bit of a hawkish message from the Fed — not necessarily that they’re going to raise rates, but just that it’ll take longer to bring rates down,” said Bill Merz, head of capital markets research at U.S. Bank Wealth Management.
Merz added that the key focus for markets at this meeting will be the Federal Reserve’s dot pot and summary of economic projections. Before the Fed decision on Wednesday, investors will also closely follow the consumer price index reading for May.
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