Stocks pulled back from record levels on Tuesday ahead of tomorrow’s big interest-rate decision from the Federal Reserve.
The Dow Jones Industrial Average fell 125 points, or 0.3%. The S&P 500 was down 0.1%. The Nasdaq Composite was down 0.1%. The S&P and Nasdaq each hit closing highs on Monday.
“Market volume is up 7% but that’s concentrated in a handful of sectors,” wrote Mizuho’s Daniel O’Regan with just about 25 minutes left in the session.
The yield on the 2-year Treasury note dipped to 3.51% while the 10-year yield was down to 4.03%.
Treasury yields briefly spiked after the Census Bureau said August retail sales rose 0.6%, which was well above economist expectations at 0.2%.
The Fed is widely expected to opt for a quarter-point cut tomorrow, though Wall Street will be paying close attention to forecasts from central bankers and comments from Chairman Jerome Powell.
“We suspect that market participants have gotten a bit ahead of themselves with respect to pricing in cuts sequentially at upcoming meetings,” writes Larry Werther, Chief U.S. Economist at Daiwa Capital Markets America. “To be sure, there will be some officials arguing forcefully for aggressive action (we would be unsurprised if newly minted Governor [Stephen] Miran dissents in favor of a 50-basis-point cut tomorrow), but we also suspect that at least a handful of members are still deeply concerned about above-target inflation.”
Given the major indexes are hovering near their highest levels on record, there are also some worries that the cut may turn into a “buy the rumor, sell the news” event, though Frank Cappelleri, founder of technical analysis firm CappThesis, told Barron’s on Monday that drawdowns since mid-April have been muted.
“In other words, the burden is on the bears to act on any catalyst,” Cappelleri said. “So far, even sharp down days—like August 1—have failed to generate meaningful downside follow-through. This resilience has kept interest alive regardless of news or sentiment.”