Wall Street Slumps as Investors Take Cover Ahead of Fed Decision
Wall Street slackened on Tuesday, with risk-off sentiment weighing as the U.S. Federal Reserve convened for its much-anticipated two-day monetary policy meeting.
Against this backdrop, growing jitters that a stalemate on Capitol Hill could result in a potential government shutdown had market participants on edge.
Treasury Secretary Janet Yellen on Monday said that while she sees no risk of an economic downtown, she warned that a government shutdown would be “Creating ... a situation that could cause a loss of momentum is something we don’t need as a risk at this point.”
The week’s main event is the Fed’s policy meeting, which is expected to culminate in a rate hike pause, leaving the Fed funds target rate unchanged for the second time since March 2022, when the central bank fired its opening salvo in its battle against inflation.
The Federal Open Markets Committee (FOMC) is also due to release its quarterly Summary of Economic Projections, which will include the “dot plot,” or a glimpse into participating members’ expectations regarding the future path of interest rates.
Financial markets have currently baked in a 99% certainty that the Fed will hold the key rate at 5.25%-5.00% on Wednesday. Beyond that, the trajectory is less certain, with a 69% likelihood of the FOMC holding firm in November, according to CME’s FedWatch tool.
All three indexes were lower in a broad sell-off ahead of the Fed announcement on Wednesday, with interest rate sensitive megacaps, led by Amazon.com and Nvidia Corp, dragging the Nasdaq down most.
Market participants adjusted their positions ahead of the central bank’s scheduled announcement, which is expected to culminate in a decision to leave key interest rates unchanged.
“The increase of hedging is playing an underappreciated role in the price action we’re seeing today,” Michael Green, chief strategist at Simplify Asset Management in Philadelphia.
The Fed is also due to release its Summary Economic Projections, including its dot plot, which should provide a glimpse into the Federal Open Markets Committee’s forecast trajectory of interest rates, inflation and economic growth.
“What’s being priced into the market is a pause but increased risk that rates will stay higher for longer,” Green added. “If (the Fed) announced that they are removing rate cuts in 2024 by raising the dot plot, it would generally be seen as a very hawkish pause.”
Financial markets have priced in an all-but-certain 99% probability that the central bank will leave its key Fed funds target rate at 5.25%-5.00% on Wednesday, and a growing 70.9% likelihood of standing pat at its next meeting in November, according to CME’s FedWatch tool.
On the economic front, a jump in Canada’s annual inflation rate due to rising gasoline prices, and a bigger-than-expected plunge in U.S. housing starts helped feed investor uncertainty.
The languid IPO market continues to show signs of life, with grocery delivery app Instacart’s parent Mapplebear Inc making its Nasdaq debut, days after chipmaker Arm Holdings’ stellar entry to the public marketplace last week.
Maplebear shares surged 27.9%, while Arm Holdings was last down 4.4%.
At 2:10PM ET, the Dow Jones Industrial Average fell 151.38 points, or 0.44%, to 34,472.92, the S&P 500 lost 13.12 points, or 0.29%, to 4,440.41 and the Nasdaq Composite dropped 31.74 points, or 0.23%, to 13,678.50.
Among the 11 major sectors of the S&P 500, consumer discretionary and technology suffering the largest percentage declines.
Walt Disney shed 3.0% after the company announced it would nearly double its capital expenditure for its parks business over the next 10 years.
Starbucks lost 2.1% following TD Cowen’s decision to downgrade the coffee chain’s shares to “underperform.”
Automakers General Motors and Ford Motor Co gained 2.2% and 2.2%, respectively, as the United Auto Workers union planned to announce more strikes on Friday if no serious progress is made in ongoing talks with automakers.
Declining issues outnumbered advancing ones on the NYSE by a 1.60-to-1 ratio; on Nasdaq, a 1.47-to-1 ratio favored decliners.
The S&P 500 posted 6 new 52-week highs and 9 new lows; the Nasdaq Composite recorded 26 new highs and 225 new lows.