Wall Street Stocks Decline from Records Ahead of Fed Meeting

Wall Street Stocks Decline from Records Ahead of Fed Meeting

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Key Takeaways

• US stocks retreat from their highs amid weak retail sales data, looming Fed meeting
• Fed’s response to the economic developments likely to narrate the direction of stocks

US stocks pulled back from their record highs on Tuesday as investors digested weaker-than-expected retail sales reports and anticipated today’s FOMC meeting that will conclude with a press conference hosted by Jay Powell, the Federal Reserve Chairman. US retail sales in May dropped 1.3% compared with the previous month, indicating Americans slowed their spending last month. Consumers across the states shifted their spending habits from big-ticket products such as autos, furniture, electronics, to staying out and spending at bars and restaurants amid the ongoing reopening of the economy.

Major US indexes retreated after the data release and closed in negative territory. The Dow Jones Industrial Average ticked lower by 0.27%, or 94.42 points, to finish the session at 34,299.33. The S&P500 dropped 0.20%, or 8.56 points, to 4,246.59. The tech-heavy Nasdaq Composite declined 0.71%, or 101.29 points, to 14,072.86. The technology index was dragged lower by declining high-growth stocks such as Google, down 0.84%, and Apple and Microsoft, each down about 0.60%. Netflix tumbled 1.60%, while Tesla slid 3%.

Traders and investors are watching today’s conclusion of a two-day Federal Reserve policy meeting. Fed Chair Jay Powell is expected to lay out the central bank’s outlook for the US economy that is running hotter by almost every measure.

Inflation Continues to Present Challenges

The market would be on the lookout for any signs that the Federal Reserve could consider altering its monetary policy as the economy strengthens from the pandemic. Last year, the Federal Reserve cut interest rates to ultra-low levels in efforts to allow easy money to flow into the system and bolster economic activity. As a result, the stock market has been hitting new record highs, which has caused a surge in inflation over the past two months.

Now that last month’s data showed spending has slowed down, rising inflation could present an even bigger challenge to the Federal Reserve. As recently as April, Mr. Powell assured the Fed was not even considering the idea of tapering its asset purchases. Over the last weeks, however, Jay Powell has faced increased pressure to comment on the Fed’s next steps in a high-inflation environment.

Discussions to take the tricky first step toward scaling back the ample monetary stimulus, according to the Fed Chair, will come way ahead of the action itself. Mr. Powell has signaled that when the time to cut the bond purchases comes, he would proceed with care and give enough time so the market could adjust.

On the topic of raising interest rates, which is seen as the bigger issue threatening the high valuations of the stock market, the Federal Reserve has set a higher bar for changing the current levels that have been driving growth since the onset of the pandemic.

The upward inflationary trend has already spread to Europe. Consumer prices in the eurozone for May hit 2% and surpassed the European Central Bank’s target of just below 2%. Both the Fed and the ECB consider

the current surge in prices to be “transitory” and fade away after a few more months. On that note, the Federal Reserve’s response to the overheating economy will be crucial for the direction of the jittery stock market and the global financial stability.