Stocks Fall Ahead of Key Inflation Reports and Fed Decision

Stocks on Wall Street experienced a decline on Tuesday as investors awaited crucial inflation reports and the Federal Reserve’s interest rate policy decision. The S&P 500 dropped 0.1%, with approximately 70% of stocks in the index falling. The Dow Jones Industrial Average fell by 205 points, or 0.5%, while the Nasdaq composite managed to rise by 0.4% as of 1:56 p.m. Eastern time. This weaker trading followed record-setting days for both the S&P 500 and the Nasdaq.

The lack of significant corporate or economic news contributed to the subdued market sentiment. General Motors saw a 1.1% increase after announcing a $6 billion stock buyback approved by its board. Calavo Growers experienced a 6.4% jump in its stock price following a quarterly report that surpassed analysts’ expectations.

However, banks weighed heavily on the market, with Fifth Third Bancorp reducing its forecast for revenue growth and seeing a 1.2% decline in its stock. JPMorgan and Citigroup also faced losses, falling by 2.6% and 3.4%, respectively. Apple, on the other hand, rose by 6%, offsetting losses in the technology sector. The company’s focus on artificial intelligence technology contributed to its positive performance. Affirm Holdings also saw a 7% increase after news broke that the buy now, pay later company would be integrated into Apple Pay.

In the bond market, Treasury yields fell, with the 10-year Treasury yield slipping to 4.42% from 4.47% on Monday. The market’s attention is now focused on two key events this week: the release of the U.S. consumer price index update on Wednesday and the Federal Reserve’s interest rate update. Additionally, the U.S. will release its update on wholesale prices on Thursday. Analysts expect the consumer price index to remain unchanged at 3.4% in May. While inflation has decreased from its peak in 2022, currently hovering around 3%, it remains higher than the Fed’s target rate of 2%.

The Federal Reserve’s current meeting, which began on Tuesday, is not expected to result in any changes to the main interest rate. However, policymakers will release their latest forecasts on Wednesday, providing insight into their projections for interest rates and the economy. In March, the Fed projected approximately three interest rate cuts in 2024, a figure that is likely to be revised downward this time.

Bryce Doty, senior portfolio manager at Sit Investment Associates, criticized the Fed’s approach, stating that high interest rates are increasing costs for businesses and ultimately impacting consumers. The market is hoping for a slowdown in the economy that avoids a recession but still exerts downward pressure on inflation, potentially leading to rate cuts. Lower interest rates could stimulate further growth in the stock market, which has been reaching record highs despite concerns about inflation and interest rates.

While economic data has been mixed recently, traders are seeking a balanced slowdown that mitigates inflationary pressures. The strength of the jobs market and consumer spending have supported the resilient economy. However, concerns have arisen regarding consumer stress, particularly among lower-income individuals, prompting retailers to warn investors about potential impacts on earnings and revenue. The cooling of the U.S. jobs market could alleviate inflation but place additional strain on consumers.