Fed in Focus: Markets Slip Ahead of Key Decision
U.S. stocks ended slightly lower on Tuesday after giving up early gains, as traders trimmed positions before the highly anticipated Fed decision. The S&P 500 fell -0.13%, the Dow Jones lost -0.27%, and the Nasdaq 100 slipped -0.08%. Futures on both the S&P and Nasdaq also moved modestly into the red.
Rate Cut Expectations and the Dot Plot
Markets are fully pricing in a 25-basis-point rate cut, which would lower the federal funds target range to 4.00%–4.25%. However, the spotlight is on the Fed’s updated dot plot, where policymakers’ rate forecasts could either align with or diverge from market expectations of a total 70 bps in cuts by year-end. Odds of another 25-bp cut in October stand at 84%.
Stronger Economic Data
Tuesday’s economic reports highlighted resilience in consumer spending and manufacturing. August retail sales rose +0.6% versus forecasts of +0.2%, while manufacturing output unexpectedly gained +0.2%. These signals supported optimism about economic momentum. Technology stocks, particularly semiconductors, rallied, and energy producers advanced as crude oil reached a 1.5-week high.
Sectors and Corporate Movers
Health care stocks lagged after Wells Fargo downgraded the sector, dragging UnitedHealth and Centene lower. Among individual movers, Dave & Buster’s plunged -17% on a weak earnings miss, while Rocket Lab dropped -12% after announcing a $750 million stock offering.
On the upside, Webtoon Entertainment soared +38% following Disney’s decision to acquire a 2% stake. Energy names such as Occidental and Devon surged alongside oil, and semiconductor leaders like ON Semiconductor, Intel, and Marvell also advanced.
Bonds and Global Markets
Treasury yields edged lower, with the 10-year note yield slipping to 4.026% on strong demand at a 20-year bond auction. In Europe, yields nudged higher, while Japan’s Nikkei hit fresh record highs.
What’s Next
The Fed is expected to deliver a widely anticipated -25 bp cut on Wednesday, but investors will closely parse Jerome Powell’s comments and the updated projections for clues on the rate path into year-end. The decision will likely set the tone for both equity and bond markets in the weeks ahead.
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