A lot for Wall Street to back off and tolerate as it waits for the Federal Reserve’s latest interest rate decision on Wednesday. Stocks fell on Tuesday as investors became increasingly concerned about the impact of another big interest rate hike.
The Dow was down more than 313 points, or 1%. The S&P 500 finished the day 1.1% lower while the tech-heavy Nasdaq ended with a loss of about 1%.
There were no notable earnings reports on Tuesday…although a warning from Ford (F) about inflation and supply chain problems added to investor concerns.
There wasn’t a lot of economic data for investors to focus on other than the new housing report, which was mixed. Housing starts for August are up more than 12% from July, but building permits are down 10%.
The housing numbers are unlikely to change the views of Fed policy makers, who will announce another rate hike on Wednesday. The market is priced at about an 85% chance of a third straight percentage point increase.
But there are those who believe the Fed will be more aggressive and raise interest rates by an unprecedented full percentage point, or 100 basis points, mainly because inflation pressures persist.
“The CPI report has provided a level of uncertainty about how the Fed will act,” said Garrett DeSimone, head of quantitative research at OptionMetrics. DeSimone said he believes the Fed should raise interest rates by 100 basis points, a move that would be a “rip-up of the tax assistance hike.”
Expectations of higher rates also led to higher long-term bond yields. US 10-year Treasuries hit 3.6% sometime on Tuesday before pulling back. This is the highest level since February 2011.
The heavy selling in the market on Tuesday followed a slight rally at the start of the week. Shares rose at the end of the trading session on Monday after hovering near breakeven levels for most of the day.
But the market had two tough days, falling last week after a shock earnings warning from FedEx (FDX), which raised further concerns about the health of the global economy and US companies.
“We’re seeing a lot of FedEx junk still pouring into the markets,” said Anthony Denyer, CEO of Webull, an online brokerage. “Transport stock is the canary in the coal mine when it comes to economics.”
Investors are increasingly nervous. The CNN Business Fear and Greed Index, which looks at seven indicators of market sentiment, has slipped into fear territory.