- Powell said Fed still in ‘wait-and-see’ mode on potential rate cuts
- Fed’s Bullard not in favor of half point rate cut in July
- Housing data and consumer confidence miss estimates
- U.S., Chinese officials agree to keep talking, report says
Stocks slid lower on Tuesday after Federal Reserve President Jerome Powell said the central banks was still monitoring the economy for signs of weakness and would seek to avoid a knee-jerk reaction in terms of cutting benchmark interest rates.
The Dow Jones Industrial Average
DJIA, -0.54%
fell 0.6%, or 178 points, to 26,550 in intraday trading, while the S&P 500 index
SPX, -0.76%
lost 25 points, or 0.8%, to 2,919 and the Nasdaq Composite Index
COMP, -1.39%
gave up 119 points, or 1.5%, to 7,886.
Stocks already were lower earlier on Tuesday after fresh U.S. housing and consumer confidence data came in weaker-than-expected, which potentially could give the Federal Reserve more ammunition to cut rates in the near future.
They slipped further after St. Louis Fed President James Bullard said he was not in favor of a “huge action” on rates in July.
Read: Fed’s Bullard says he is not in favor of half point rate cut in July
Powell, who was speaking at the Council on Foreign Relations in New York, took a more measured approach than Bullard, signaling only that an interest-rate cut in July is not a done deal.
Check out: Powell says the Fed is ‘grappling’ with whether to cut interest rates
Wall Street currently has the odds of a rate cut in July at 100%, according to data from the CME Group.
“I think this is a time when the Fed gave us a one-two punch,” said Bruce McCain, chief investment strategist at Key Private Bank, adding that Powell has signaled the Fed would be data-orientated and that it doesn’t see a clear reason to cut rates at this point.
“The hard part is that most indicators show a slowing of growth in the U.S., but not evidence of a clear tilt toward recession. The market is well ahead of that the Fed is willing to do.”
U.S. home sales fell 7.8% in May versus April, even as median home prices have dipped compared with a year ago, new Commerce Department data showed. Americans also are feeling less optimistic about the economy, with the consumer confidence index missing estimates for June and skidding to 121.5, its lowest point since September 2017.
“The data is not great,” said Karyn Cavanaugh, senior market strategist at Voya Investment Management Financial, in an interview. “But just because it’s not good, doesn’t mean it’s bad. We know that there’s been a global economic slowdown.”
Attention now will turn to this weekend’s expected meeting between President Donald Trump and Chinese leaders Xi Jinping amid growing hopes for cease-fire in the U.S.-China trade war.
Stocks have rallied in June, fueled in part by growing expectations the Federal Reserve will deliver an interest-rate cut as early as next month, with perhaps additional easing by year-end. Last week’s Fed policy meeting, and remarks by Powell, reaffirmed those expectations. Moves toward easing by other major central banks have also been credited with lifting sentiment.
Also read: How the stock-market rally could turn into another case of ‘FOMO’
“China really has been doing everything it can to stimulate its economy,” Cavanaugh said. “Now with the Fed and other central banks potentially easing, the stimulus has a chance to gain some traction.”
Trump and Xi will likely meet Saturday on the sidelines of the G-20 meeting. Expectations they will agree at least to a cease-fire that would avert the imposition of tariffs on a further $300 billion of Chinese imports have also been credited with lifting stocks, though some analysts view those hopes as misplaced.
See: Why stock-market bulls see their summer riding on the Trump-Xi trade meeting
“The recent G-7 central bank market rally is stalling as the market does not seem that confident of a Trump/Xi Jinping trade break through at this week’s G-20 gathering,” said Dean Popplewell, vice president of market analysis at Oanda, in a note.
Meanwhile, U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin spoke by phone with Chinese Vice Premier Liu He on Monday, Bloomberg reported, with China’s commerce ministry saying they had agreed to continue communicating.
Investors are also watching the Middle East, with continuing tensions between the U.S. and Iran driving gold prices toward a six-year high. Iran said Trump’s decision Monday to impose additional sanctions on Iran had closed the door to diplomatic negotiations. Iran last week downed a U.S. military drone near the Strait of Hormuz, a key oil transportation choke point, and has been blamed by Washington for attacks on tankers in the area. Iran has denied responsibility for the tanker attacks.
Other data
Home prices in April rose at their slowest pace since August 2012, marking the 13th month in a row of slower annual growth, according to the S&P CoreLogic Case-Shiller 20-city index.
Stocks on the move
Shares of Allergan PLC
AGN, +26.24%
soared almost 27% after AbbVie Inc.
ABBV, -15.83%
said it agreed to buy the pharmaceutical company in a deal valued at $63 billion. AbbVie shares were off nearly 15%.
Read: Allergan acquisition is a ‘major bailout’ for shareholders, analysts say
FedEx Corp.
FDX, -2.65%
is scheduled to report fourth-quarter results after the closing bell. Separately, the company, after previously botching deliveries for Huawei Technologies, filed a lawsuit on Monday to stop the U.S. government from requiring the package giant to enforce a crackdown on the Chinese telecom equipment maker.
Shares of home builder Lennar Corp.
LEN, -6.19%
dipped almost 6% after notching a gain in trading after reporting second-quarter earnings and revenue well above expectations.
Grubhub Inc. shares
GRUB, +5.50%
were up 4% after Citi Research analyst Mark May upgraded the stock to buy from hold, citing the food-delivery company’s ability to continue to expand food sales.
Source : MTV
