Investing.com – U.S. stocks gave up ground on Tuesday while investors digested a string of last round data showing weak consumption and recovering inflation prior to the Federal Reserve’s policy decision on Wednesday and oil remained unable to recover from global supply worries ahead of key U.S. inventory data.
At 16:37GMT or 12:37 ET, the Dow 30 lost 26 points or 0.15%, while the S&P 500 gave up 9 points or 0.45% and the tech-heavy NASDAQ Composite traded down 25 points or 0.52%.
Tuesday’s session accompanied the kick-off of the Fed’s two-meeting with traders digging in ahead of the release of not only the U.S. central bank’s decision on monetary policy, but also the updated economic projections of its members and the following press conference with Fed chair Janet Yellen.
Markets do not expect changes to the federal funds rate at this meeting with most experts suggesting that June could be the first opportunity for a hike.
However, close attention will be paid to the economic forecasts and, especially, the dot plot that shows Fed members’ forecasts for the future path of interest rates.
The FOMC statement will center attention as investors scour the document for language changes, only to be replaced in the headlines by remarks from the Fed chief herself who will further clarify the central bank’s position on the economy, unemployment and the path of interest rates.
In this context, the data released on Tuesday gave markets food for thought with consumption indicators showing weakness and price data showing a recovery in inflation as it crept closer to the Fed’s 2% target.
The focus was on February retail sales, which, although they dropped less than expected, still registered their largest two-month decline in a year, underlining concerns over the economic outlook.
Business inventories also rose unexpectedly with the total business inventories to sales ratio hitting a seven year high, another indicator of a soft consumer demand in the economy.
Not all the data was worrisome as the March Empire State Manufacturing index made a surprising recovery and showed the first expansion in eight months thanks to growth in new orders and shipments.
But price-side data continued to show a recovery, with the February producer price inflation (PPI) unchanged from a year ago, suggesting that the downward trend could be reaching its end.
The data point is relevant for inflation as producers tend to try and pass price increases onto consumers, so PPI could be considered a leading indicator.
With all this in mind, the Atlanta Fed cut its forecast for growth in the U.S. economy for the first quarter of 2016 on Friday from 2.2% to 1.9% precisely due to Friday’s retail sales report.
Additionally, Barclays (LON:BARC) too became the latest of a string of experts to cut growth forecasts for the U.S. economy in the first quarter as these experts dropped their estimate by half-a-percent to 1.9%.
Individual Fed officials are expected to cut their own forecasts in the update to economic projections that will accompany the statement tomorrow and, along with the February CPI released on Wednesday, the data will probably center the debate on future policy moves at the heart of the U.S. central banks.
Fed doves will be concerned about the need for maintain accommodative measures in order to protect the still-fragile economy, while the hawks will point towards the recovery in inflation as they express worries over falling behind the curve.
Outside jitters over the next Fed move, crude continued to be a major market focus on Tuesday as it tumbled to more than a one-week low on Tuesday after Iran dashed hopes that there would be a coordinated production freeze any time soon.
With that in mind, investors looked ahead to fresh weekly information on U.S. stockpiles of crude and refined products. The American Petroleum Institute will release its inventories report later in the day, while Wednesday’s government report could show crude stockpiles rose by 3.4 million barrels in the week ended March 11.
U.S. crude futures fell 2.96% to $36.08 by 16:41GMT or 12:41ET, while Brent oil traded down 2.50% to $38.54.
In company news, Valeant Pharmaceuticals International Inc (NYSE:VRX) grabbed headlines on Tuesday, losing more than 40%, after reporting earnings far below consensus, and cutting forecasts for 2016, all while admitting that the delay in submitting its annual report could pose default risk and the CEO of the Canadian drugmaker, Michael Pearson (LON:PSON), admitted that the company wasn’t “running on all cylinders”.
FactSet Research Systems Inc (NYSE:FDS) also fell close to 4% after disappointing with its own quarterly earnings report and guidance.
Oracle Corporation (NYSE:ORCL) will be reporting earnings after the market close.