Market Snapshot: Dow, S&P 500 fall for a fifth straight day, U.S. stocks close mostly lower as Fed policy decision looms

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U.S. stocks ended mostly lower Tuesday, with the S&P 500 and Dow Jones Industrial Average each falling for a fifth straight day, ahead of what’s expected to be one of the biggest Federal Reserve interest-rate hikes in decades on Wednesday.

How did stock indexes perform?

The Dow Jones Industrial Average
DJIA,
-0.50%

dropped 151.91 points, or 0.5%, to close at 30,364.83, its lowest settlement since Feb. 1, 2021.

The S&P 500
SPX,
-0.38%

fell 14.15 points, or 0.4%, to finish at 3,735.48, its lowest settlement since January 29, 2021.

The Nasdaq Composite
COMP,
+0.18%

rose 19.12 points, or 0.2%, to end at 10,828.35.

The S&P 500 has dropped 10.2% over the past five trading days, the worst percentage decline over that time span since March 2020, when the U.S. was first confronting the coronavirus pandemic, according to Dow Jones Market Data. The index, which entered a bear market on Monday, is down 22.1% from its record high on January 3.

Related: What investors need to know about the S&P 500 bear market

What drove markets?

Major U.S. stock benchmarks ended mixed in a choppy trading session Tuesday as the Federal Reserve kicked off its two-day policy meeting, with question marks around how the central bank will respond to the fastest inflation in four decades.

Investors’ expectations for the Fed to hike its benchmark interest rate by 75 basis points have climbed, a move that seemed remote even last week. How the central bank will convey its intentions about future rate activity is also a big question.

“The market is priced for 75 basis points, so I think the Fed might go ahead and take it,” said Brent Schutte, chief investment officer at Northwestern Mutual Wealth Management Co. in a phone interview Tuesday, referring to rate hike expectations priced into fed funds futures. The central bank may help reinforce its “inflation-fighting credibility” by raising its benchmark rate by three-quarters of a percentage point, he said.

Read: A 75-basis-point hike? Here are 3 ways the Fed can sound more hawkish this week

“In my view a surprise 75 bps (basis points) hike would be a happy one,” said Nancy Tengler, chief executive and chief investment officer of Laffer Tengler Investments, in emailed comments Tuesday. “The question now is whether the economy can avoid recession.”

The NFIB Small Business Optimism Index decreased marginally to 93.1 in May from 93.2 in April, the lowest level since April 2020, according to data released Tuesday by the National Federation of Independent Business. The reading was broadly in line with economists’ expectations in a poll by The Wall Street Journal.

Meanwhile, the producer-price index showed the cost of wholesale goods and services jumped 0.8% in May, adding to mounting evidence that the highest U.S. inflation in 40 years may persist through the summer. The monthly rise was in line with forecasts from economists polled by The Wall Street Journal.

“A more accelerated Fed hiking cycle ultimately should help tame inflation pressures but will make it more difficult to thread the needle between lower inflation and a recession,” Deutsche Bank economists said in a research note Tuesday. “We continue to anticipate that bringing inflation back down to target will require a meaningful hit to demand and rise in the unemployment rate, the latter of which historically does not happen without a recession.”

Read: White House acknowledges Americans are ‘concerned about inflation and the stock market,’ as S&P 500 erases all gains since Biden’s inauguration

Mark Haefele, chief investment officer for UBS Global Wealth Management, said risks of a Fed-induced recession have increased, and the chances of a recession in the next six months have risen.

“Wednesday’s FOMC meeting, which includes the Fed’s latest economic forecasts, is one of the most significant in recent history and will be critical for the outlook for financial markets. Volatility is likely to remain high over the coming days, as investors consider the potential need to recalibrate their assumptions based on the Fed’s decisions,” he said.

Which companies were in focus?

Shares of database giant Oracle Corp.
ORCL,
+10.41%

jumped 10.5% after beating earnings and revenue estimates for its fiscal fourth quarter, though its first-quarter earnings guidance was below Wall Street estimates.

Crypto exchange Coinbase Global Inc.
COIN,
-0.83%

announced it would lay off 18% of its employees less than two weeks after the company said it would extend a hiring freeze and rescind some offers. Shares fell 0.8%.

FedEx Corp.
FDX,
+14.41%

said it would lift its quarterly cash dividend by 53% to $1.15 a share from 75 cents previously. Shares surged 14.4%.

How did other assets fare?

The yield on the 10-year Treasury note
TMUBMUSD10Y,
3.480%

climbed 11.1 basis points to 3.482%, the highest since April 14, 2011, based on 3 p.m. Eastern Time levels, according to Dow Jones Market data. Yields and debt prices move opposite each other.

The ICE U.S. Dollar Index
DXY,
+0.38%
,
a measure of the currency against a basket of six major rivals, was up 0.4%.

Bitcoin
BTCUSD,
-1.94%

was down 4.6% at $22,178.

In oil futures
CL.1,
-1.55%
,
West Texas Intermediate crude for July delivery
CLN22,
-1.55%

fell $2, or nearly 1.7%, to close at $118.93 a barrel.

Gold
GC00,
-1.20%

for August delivery
GCQ22,
-1.20%

fell 1% to settle at $1,813.50 an ounce, the lowest finish for the yellow metal’s most-active contract since May 13.

In European equities, the Stoxx Europe 600
SXXP,
-1.26%

closed 1.3% lower, while London’s FTSE 100
UKX,
-0.25%

slipped 0.3%.

In Asia, the Shanghai Composite
SHCOMP,
+1.02%

closed 1% higher, while the Hang Seng Index
HSI,
+0.00%

ended virtually unchanged in Hong Kong and Japan’s Nikkei 225
NIK,
-1.32%

finished 1.3% lower.

–Steve Goldstein contributed to this report.

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