Investors await the Federal Reserve’s rate cut decision after markets recover from summer challenges
The S&P 500 closed near flat on Tuesday, following a brief record high as markets awaited the Federal Reserve’s decision on a key interest rate cut, reports CNBC.
The index edged up by 0.03 percent to 5,634.58, after hitting a peak of 5,670.81 earlier in the session. Meanwhile, the Dow Jones Industrial Average fell slightly, losing 15.9 points (0.04 percent) to close at 41,606.18, although it also reached a record high earlier in the day.
The Nasdaq Composite gained 0.2 percent, finishing at 17,628.06. Both the S&P 500 and Dow reached new highs during a typically difficult period for the market—September, which has averaged a 1.3 percent loss over the past 10 years, according to FactSet data.
Traders have been facing late-summer economic challenges, particularly concerns over the health of the US economy.
August saw disappointing jobs and manufacturing data, leading to a major one-day sell-off. However, equities managed to recover as more positive data emerged, along with expectations that the Federal Reserve would lower interest rates.
Wall Street is now focused on the Fed’s upcoming interest rate decision, set for Wednesday afternoon. A rate cut could potentially boost company earnings after a period of high inflation and steep borrowing costs. The Fed first started raising interest rates aggressively in March 2022.
Recent retail sales data showed signs of consumer health, with sales increasing by 0.1 percent in August, which surpassed economists' predictions of a 0.2 percent decline, according to Dow Jones. Excluding autos, sales also rose by 0.1 percent, though this missed the forecast of a 0.2 percent rise.
While most investors expect a rate cut, the size of the reduction remains uncertain. The CME Group’s FedWatch Tool indicates a 63 percent chance that the central bank will cut rates by 50 basis points, up from 47 percent on Friday but down from 67 percent earlier on Tuesday.
A larger rate cut could raise concerns about the economy’s health. “A 50 basis point cut may further imply a downgrade of the Fed’s view on the labour market — that would be more of a concerning sign," said Adam Turnquist, chief technical strategist at LPL Financial.
He added, “I think there’s going to be a pretty big deviation between what the market is expecting, and what the Fed is going to project.”
In corporate news, Intel shares jumped 2.7 percent after the company revealed plans to make its foundry business a subsidiary. The Biden administration awarded Intel up to $3bn in funding through the CHIPS Act to support this initiative.
