U.S. Stocks Move Mostly Lower As Fed Announcement Looms

Stocks have moved mostly lower in morning trading on Tuesday, with the major averages all moving to the downside after ending the previous session little changed. The tech-heavy Nasdaq has fallen to its lowest intraday level in almost a month.

Currently, the major averages are just off their lows of the session. The Nasdaq is down 107.38 points or 0.8 percent at 13,602.86, the Dow is down 195.82 points or 0.6 percent at 34,428.48 and the S&P 500 is down 24.45 points or 0.6 percent at 4,429.08.

The weakness on Wall Street comes as traders remain on edge ahead of the Federal Reserve’s monetary policy announcement on Wednesday.

While the Fed is widely expected to leave interest rates unchanged, traders will pay close attention to the accompanying statement and the central bank’s projections for clues about the outlook for rates.

CME Group’s FedWatch Tool is currently indicating a 99.0 percent chance the Fed will leave rates unchanged this week, but the outlook for the November meeting is somewhat more mixed.

The FedWatch Tool is indicating a 70.9 percent chance rates will remain unchanged in November but a 28.8 percent chance of another quarter point rate hike.

“The risks for headline inflation to heat up over the next couple of months are rising and that should complicate what the Fed does,” said Edward Moya, senior market analyst at OANDA.

“Do policymakers become convinced that despite a resilient labor market, pricing pressures will continue to ease?” he added. “If core inflation shows it is struggling to continue to drop, the higher-for-longer rate regime will last a lot longer than the market is pricing in.”

Negative sentiment may also have been generated in reaction to a Commerce Department report showing a sharp pullback in U.S. housing starts in the month of August.

The report said housing starts plunged by 11.3 percent to an annual rate of 1.283 million in August after jumping by 2.0 percent to a revised rate of 1.447 million in July.

Economists had expected housing starts to decrease to an annual rate of 1.440 million from the 1.452 million originally reported for the previous month.

With the substantial pullback, housing starts tumbled to their lowest level since hitting an annual rate of 1.266 million in June 2020.

“The sharp drop in Housing Starts this morning is concerning because housing has been one of the pillars of the economy that has held up much better than expected,” said Chris Zaccarelli, Chief Investment Officer for Independent Advisor Alliance.

He continued, “If it turns out that this is the first crack in an otherwise bulletproof consumer then it could change the narrative from an economy that is impervious to rapid interest rate hikes to one that is vulnerable and susceptible to a recession.”

Meanwhile, the Commerce Department said building permits surged by 6.9 percent to an annual rate of 1.543 million in August after inching up by 0.1 percent to a revised rate of 1.443 million in July.

Building permits, an indicator of future housing demand, were expected to rise to an annual rate of 1.445 million from the 1.442 million originally reported for the previous month.

With the sharp increase, building permits reached their highest level since hitting an annual rate of 1.555 million last October.

Sector News

Gold stocks have shown a significant move to the downside on the day, dragging the NYSE Arca Gold Bugs Index down by 1.5 percent. The index is pulling back off its best closing level in over a month.

The pullback by gold stocks comes amid a slight decrease by the price of the precious metal, with gold for December delivery edging down $0.10 to $1,953.30 an ounce.

Considerable weakness is also visible among retail stocks, as reflected by the 1.5 percent loss being posted by the Dow Jones U.S. Retail Index.

Semiconductor, airline and software stocks are also seeing notable weakness in morning trading, while telecom stocks have moved to the upside.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly lower during trading on Tuesday. Japan’s Nikkei 225 Index slid by 0.9 percent, while China’s Shanghai Composite Index closed just below the unchanged line.

The major European markets have also moved to the downside on the day. While the U.K.’s FTSE 100 Index is marginally lower, the French CAC 40 Index is down by 0.1 percent and the German DAX Index is down by 0.4 percent.

In the bond market, treasuries are seeing modest weakness after ending the previous session roughly flat. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is up 1.4 basis points at 4.333 percent.

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