Looming Fed Decision Contributes To Sell-Off On Wall Street

Stocks moved sharply lower during trading on Tuesday, with the major averages adding to the slim losses posted during Monday’s session. The major averages all showed significant moves to the downside on the day.

The major averages recovered from their worst levels of the day but still posted steep losses. The Dow tumbled 367.17 points or 1.1 percent to 33,684.53, the Nasdaq slumped 132.09 points or 1.1 percent to 12,080.51 and the S&P 500 plunged 48.29 points or 1.2 percent to 4,119.58.

The sell-off on Wall Street came as some traders looked to cash in on recent strength in the markets ahead of the Federal Reserve’s monetary policy announcement on Wednesday.

With the Fed widely expected to raise interest rates by another 25 basis points, traders will pay close attention to the accompanying statement for clues about the outlook for rates.

CME Group’s FedWatch Tool is currently indicating an 87.5 percent chance the Fed will raise rates by 25 basis points and a 72.9 percent chance the central bank will subsequently leave rates unchanged in June.

Concerns about lawmakers’ struggles to reach an agreement on raising the U.S. debt ceiling also weighed on Wall Street.

U.S. Treasury Secretary Janet Yellen has warned the Treasury might run out of money to cover obligations as soon as June 1.

In U.S. economic news, the Commerce Department released a report showing new orders for U.S. manufactured goods increased by slightly more than expected in March.

The Commerce Department said factory orders advanced by 0.9 percent in March after slumping by a revised 1.1 percent in February.

Economists had expected factory orders to climb by 0.8 percent compared to the 0.7 percent decrease originally reported for the previous month.

A separate report released by the Labor Department showed job openings in the U.S. fell by more than expected in the month of March.

The Labor Department said job openings decreased to 9.590 million in March from an upwardly revised 9.974 million in February. With the drop, job openings fell to their lowest level since April 2021.

Economists had expected job openings to decline to 9.775 million from the 9.931 million originally reported for the previous month.

Sector News

Energy stocks moved sharply lower on the day, with another steep drop by the price of crude oil weighing on the sector.

After slumping $1.12 to $75.66 a barrel in the previous session, crude for June delivery plummeted $4 to $71.66 a barrel amid concerns about the outlook for demand.

Reflecting the weakness in the energy sector, the Philadelphia Oil Service Index plunged by 5.1 percent and the NYSE Arca Oil Index dove by 4.5 percent.

Banking stocks also showed a substantial move to the downside on the day, with the KBW Bank Index tumbling by 4.5 percent to its lowest closing level in over two years.

Networking, brokerage and steel telecom stocks also saw significant weakness, while gold stocks were among the few groups to buck the downtrend amid a spike by the price of the precious metal.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region turned in a mixed performance on Tuesday. Japan’s Nikkei 225 Index crept up by 0.1 percent, while Australia’s S&P/ASX 200 Index slid by 0.9 percent following a surprise interest rate hike.

Meanwhile, the major European markets all moved notably lower on the day. While the French CAC 40 Index tumbled by 1.5 percent, the German DAX Index and the U.K.’s FTSE 100 Index both slumped by 1.2 percent.

In the bond market, treasuries showed a strong move back to the upside following the steep drop seen on Monday. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, tumbled by 13.5 basis points to 3.439 percent.

Looking Ahead

Trading on Wednesday is likely to be driven by reaction to the Fed’s monetary policy announcement, although reports on private sector employment and service sector activity may attract attention earlier in the day.

On the earnings front, Advanced Micro Devices (AMD), Clorox (CLX), Ford (F) and Starbucks (SBUX) are among the companies releasing their quarterly results after the close of today’s trading.

CVS Health (CVS), Kraft Heinz (KHC) and Yum! Brands (YUM) are also among the companies due to report their results before the start of trading on Wednesday.

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