U.S. stock indexes were flat on Tuesday as Wall Street showed little significant movement ahead of an expected first interest rate cut in more than four years.
The Standard & Poor’s 500 rose 1.49 points, or less than 0.1 percent, to 5,634.58. It’s still 0.6 percent below its closing record set in July and briefly surpassed that level in the morning.
The Dow Jones Industrial Average fell 15.90 points, or less than 0.1 percent, from its record high set the previous day to 41,606.18, while the Nasdaq Composite rose 35.93 points, or 0.2 percent, to 17,628.06.
Intel helped lead the market with a 2.7% gain after a series of announcements, including an expanded partnership with Amazon Web Services to produce custom chips. Intel also detailed plans to build out its foundry business.
That helped offset a 2.2 percent decline at Philip Morris International, which forecast a $220 million loss for its third-quarter results due to the sale of its inhaled treatment subsidiary Vectura Group.
The muted movement across the U.S. stock market was a stark contrast to the previous week, when the S&P 500 briefly fell nearly 10% below its all-time high. At the time, global markets were rocked by concerns that a slowing U.S. economy could slip into recession, along with several technical factors that forced hedge funds around the world to pull out of popular trades en masse.
Since then, excitement has been building for the Fed’s announcement scheduled for Wednesday afternoon. The consensus expectation on Wall Street is that the central bank will cut the federal funds rate, which has been hovering in the 5.25% to 5.50% range for more than a year.
Lower rates would make things easier for an economy that is already slowing because it has become so expensive to borrow money. The Fed has kept its key interest rate at a 20-year high in the hopes of shrinking the economy enough to tame high inflation.
Now that inflation has fallen significantly from its peak in the summer two years ago, the Fed believes it can shift its focus to protecting the job market and the economy. The only question is how far the Fed will cut rates, and that will be a delicate balancing act.
Cutting interest rates would boost the overall economy and financial markets, but it could also spur inflation even more. Some critics argue that the Fed is already too late to help the economy, while others warn that inflation will remain stubbornly higher than in the past.
The general expectation on Wall Street is that the Fed will cut rates by a larger-than-usual half-point on Wednesday, according to data from CME Group. But that’s not a certainty: Traders are still betting on a 35% chance of a quarter-point move of the traditional size.
Economic reports released on Tuesday did little to change those forecasts. Some said U.S. shoppers spent more than expected at retail stores last month, an encouraging signal of strength at the core of the U.S. economy, but the details below the surface may have been more discouraging. Ignoring autos and fuel, sales at U.S. retail stores last month were slightly weaker than economists had expected.
“This data doesn’t really define the Fed’s agenda one way or the other,” Chris Larkin, managing director of trading and investments at Morgan Stanley’s E*Trade, said of the size of Wednesday’s rate cut.
A separate report released later in the morning said U.S. industrial production returned to growth in August, stronger than economists had expected.
In the bond market, the yield on the 10-year Treasury note rose to 3.64% from 3.62% late on Monday. The yield on the 2-year note, which more accurately reflects expectations for Fed policy, rose to 3.59% from 3.56%.
In overseas stock markets, Japan’s Nikkei average fell 1% as the yen strengthened against the US dollar.
The yen has strengthened on expectations that the Bank of Japan will go in the opposite direction to the Fed and continue to raise interest rates, which could hurt profits for Japan’s biggest exporters.
Markets were closed in mainland China and South Korea, while stock indexes rose slightly across much of Europe.
Cho is a contributing writer for The Associated Press. Associated Press writers Matt Ott and Elaine Kurtenbach contributed to this report.
