On Tuesday, Wall Street’s primary indexes fell as investors grappled with the possibility of an interest rate pause by the Federal Reserve at its next policy meeting. Mixed economic data further exacerbated uncertainty around the path of interest rates.
Data released on Monday revealed that the US services sector barely expanded in May, and new orders slowed. As a result, prices paid by companies for inputs reached their lowest level in three years. While this suggested a cooling of the Federal Reserve’s monetary tightening in the world’s largest economy, it came after strong monthly employment data the previous week, clouding the outlook for Federal Reserve policy.
Investors are currently deliberating on the impact of a potential jump or pause on the upcoming meeting. Paul Nolte, senior wealth advisor and market strategist at Murphy & Sylvest, said: “The market is now on pause until we get to the Federal Reserve meeting and inflation data.”
Upcoming inflation data, due out next week, is expected to show a slight cooling in consumer prices month-on-month in May. However, base prices are expected to remain high.
Last week, some Federal Reserve officials expressed support for keeping interest rates steady during the June 13-14 meeting. They are looking for more signs that the economy is cooling or whether higher rates are warranted. These officials have now entered a “lockdown” period.
According to CMEGroup’s Fedwatch tool, Fed funds futures indicate that traders have assigned a 75% probability that the central bank will keep interest rates in the range of 5% to 5.25%. However, they also see a 50% chance of a 25 basis point rate hike in July.
As of 9:59 a.m. ET, the Dow Jones Industrial Average had fallen 64.72 points, or 0.19%, to 33,498.14. The S&P 500 fell 5.06 points, or 0.12%, to 4,268.73, while the Nasdaq Composite fell 23.61 points, or 0.18%, to 13,205.82.
In recent weeks, U.S. stocks have made gains, boosted by a rally in mega-cap stocks, better-than-expected earnings and hopes of a pause in interest rate increases. This surge propelled the benchmark S&P 500 and the tech-heavy Nasdaq to new highs for 2023 on Friday.
Among the 11 major S&P sectors, technology and energy saw the most significant declines, while the financial sector posted gains.
Coinbase Global saw a sharp drop of 15.2% following a lawsuit from the US Securities and Exchange Commission (SEC), which accused the cryptocurrency exchange of operating illegally without prior registration with the regulator.
Apple Inc extended its losses, falling 1.0% the day after the company unveiled its expensive augmented reality device called Vision Pro, thus entering a market currently dominated by Meta.
By contrast, Advanced Micro Devices rose 3.6% after Piper Sandler raised its price target for the stock to $150, making it the second-highest on Wall Street, according to Refinitiv data.
Oil stocks faced a decline, with both Exxon Mobil and Chevron seeing a drop of about 1% each due to a nearly 2% drop in crude oil prices driven by concerns about the global economy.
Rising issues outnumbered declining ones by a ratio of 1.50 to 1 on the New York Stock Exchange, while on the Nasdaq, the ratio stood at 1.24 to 1.
The S&P index recorded five new 52-week highs and four new lows, while the Nasdaq recorded 32 new highs and 38 new lows.
Also read: Morgan Stanley Warns of Potential Setback to US Stocks Rally as Earnings Projection Falls 16%