Wall Street experienced a slowdown on Tuesday as investors adopted a risk-off sentiment ahead of the U.S. Federal Reserve’s two-day monetary policy meeting. This cautious approach resulted in all three indexes declining, with the Nasdaq being dragged down the most by interest rate-sensitive megacaps like Amazon.com and Nvidia Corp.
Market participants adjusted their positions in anticipation of the central bank’s scheduled announcement, which is widely expected to maintain key interest rates at their current levels. The increase in hedging activities has played an underappreciated role in the day’s price action, according to Michael Green, chief strategist at Simplify Asset Management. The Federal Reserve is also set to release its Summary Economic Projections, including the dot plot, which gives insight into the committee’s forecast trajectory for interest rates, inflation, and economic growth.
The market has priced in a 99% probability that the central bank will leave rates unchanged during Wednesday’s announcement, with a growing likelihood of no changes at the November meeting. However, there is increased risk that rates will remain higher for a longer period, which would be seen as a hawkish pause.
Uncertainty was fueled by Canada’s rising annual inflation rate due to increased gasoline prices and a larger-than-expected drop in U.S. housing starts. Meanwhile, the IPO market showed signs of life as grocery delivery app Instacart’s parent company, Maplebear Inc, made its debut on the Nasdaq, while chipmaker Arm Holdings experienced a decline.
In terms of sector performance, consumer discretionary and technology suffered the largest declines in the S&P 500. Walt Disney announced its plans to substantially increase capital expenditure for its parks business, leading to a 3.0% decline in its stock. Starbucks also saw a 2.1% loss after being downgraded by TD Cowen.
Automakers General Motors and Ford Motor Co, on the other hand, experienced gains of 2.2% each as the United Auto Workers union threatened more strikes if progress is not made in ongoing talks.
Overall, declining issues outnumbered advancing ones on both the NYSE and Nasdaq. While certain sectors struggled, others showed strength. As the market awaits the Federal Reserve’s decision, investors continue to adjust their positions cautiously.
– Green, Michael, Chief Strategist at Simplify Asset Management in Philadelphia