Investing.com - Stocks fell back Tuesday as investors became more certain the Federal Reserve will only enact a modest rate cut at its July meeting. In addition, unease grew about the prospects for a meeting between President Donald Trump and China President Xi Jinping
The S&P 500 fell 0.95%. The Nasdaq Composite dropped 1.51% and the Dow Jones industrials dropped 0.67%. The day's declines were the third straight for the S&P 500 and the Nasdaq and second in three days for the Dow.
The market was modestly lower when both Fed Chairman Jerome Powell and St. Louis Federal Reserve Bank President James Bullard gave speeches and acknowledged rates might need to be cut to sustain the economic recovery. But Bullard disappointed when he suggested a rate cut would not be 50 basis points (a half-percentage point), which is what more bullish investors have been betting on and the president would like.
Investing.com's Fed Rate Monitor Tool expects the Fed to trim its key federal funds rate to 2% to 2.25% from 2.25% to 2.5% now at its July meeting. The speeches will probably amplify the president's criticism of the Fed and of Powell in particular. There's talk the president might replace Powell as chairman, although Powell's actual term as a Fed governor would go on. (The legality of such a move is not entirely clear.)
Despite the stock market's reaction, bond traders saw rates heading lower. The U.S. 10-Year Treasury fell below 2% for the first time since November 2016. The yield has fallen 17.4% this quarter alone and is down about 25.8% for the year.
Trump's meeting with President Ji also carries risks for markets. If the United State and China can't resolve their trade disputes, the trade war will go on and unsettle markets.
In addition to the political tensions, profit-taking seemed to hit the market, with tech stocks hit the hardest.
Microsoft (NASDAQ:MSFT) was the biggest laggard among the 30 Dow stocks and third-worst among Nasdaq 100 stocks, in part because it has been one of the top Dow performers this year. There were analysts suggesting the software giant's Azure cloud business might not be a profitable as Amazon's (NASDAQ:AMZN) Web Services business.
But Amazon also fell on Tuesday, as did Apple (NASDAQ:AAPL), Google parent Alphabet (NASDAQ:GOOGL), Adobe Systems (NASDAQ:ADBE), Facebook (NASDAQ:FB) and Cisco Systems (NASDAQ:CSCO). The Nasdaq 100 fell 1.70%.
Where there was strength was in very defensive stocks. McDonald’s (NYSE:MCD), Procter & Gamble (NYSE:PG) and Travelers (NYSE:TRV) hit 52-week highs. Walgreens Boots Alliance (NASDAQ:WBA) and McDonald's were the top Dow performers on the day.
Botox-maker Allergan (NYSE:AGN) jumped 25% after agreeing to be acquired by AbbVie (NYSE:ABBV) for about $63 billion.
Metals and crude oil were mostly steady. The August contract for gold settled up 50 cents at $1,418.70 an ounce in New York, although it traded as high as $1,442.90. WTI futures were off just 7 cents to $57.83.
Not helping the market was a Conference Board report showing consumer confidence fell to a 21-month low.
And housing stocks dropped back after the Commerce Department reported that sales of new U.S. single-family homes unexpectedly fell for a second-straight month in May. That indicated lower mortgage rates had yet to provide a boost to the struggling housing market. Lennar (NYSE:LEN) underscored the weakness with weaker than-expected guidance. Shares fell 6.1%, second-worst among S&P 500 stocks. The company said U.S. tariffs are adding $500 to the cost of a home. Average selling prices are falling as well.
Winners and Losers in the S&P 500
Allergan (NYSE:AGN), Mylan (NASDAQ:MYL) and HCA Holdings (NYSE:HCA) were among the top S&P 500 performers on the day.
AbbVie (NYSE:ABBV), Lennar (NYSE:LEN) and TripAdvisor (NASDAQ:TRIP) were the S&P 500 laggards.