Wall Street stocks declined on Tuesday as the US Federal Reserve commenced a two-day meeting, where it is anticipated to cut interest rates. Initially, the S&P 500 and Nasdaq Composite reached new record highs at the start of trading in New York, but soon dropped into negative territory.
The expectation of a rate cut by the Fed has been driven by recent data indicating a softening labor market and moderate inflation. According to Richard Hunter, head of markets at Interactive Investor, “The Fed’s focus appears to have shelved inflation concerns for now, instead concentrating on a stalling US jobs market, which should lead to a 0.25-percent cut.”
Despite concerns about overvaluation, particularly in tech shares, investors have largely disregarded these worries. Fawad Razaqzada, an analyst at City Index and FOREX.com, noted that investors are choosing to take profit on the recent bull run for technology stocks ahead of the Fed committee meeting.
On Tuesday, retail sales data in the United States showed a 0.6 percent increase in August, exceeding expectations of a 0.2 percent gain. This suggests that US consumers are not holding back despite the softening jobs market. Additionally, US non-fuel import prices rose by 0.4 percent in August, following no gain in July.
The data released on Tuesday is unlikely to change the market’s expectation of a 25-basis-point rate cut by the Fed. However, it may temper calls for a 50-basis-point cut, according to Patrick O’Hare, an analyst at Briefing.com.
The dollar declined against its main rivals on Tuesday, making it less attractive to investors due to lower interest rates. As a result, gold prices surged to an all-time peak close to $3,700 an ounce, driven by expectations of reduced US interest rates over the next few months and possibly into 2026. The euro reached its highest level against the dollar since 2021, while the British pound firmed against the dollar.
In other news, European stock markets fell on Tuesday, following a steady performance by Asia’s main indices. Shares in Germany’s Thyssenkrupp rose around eight percent in Frankfurt after India’s Jindal Steel International made an offer for the company’s steel division. The sentiment was also supported by the announcement of a deal between the United States and China over TikTok, which is expected to be confirmed by President Donald Trump on Friday.
The decline in stocks and the dollar’s slump reflect the market’s anticipation of the Fed’s decision on interest rates. As the Fed meeting continues, investors will be closely watching for any indication of the central bank’s future monetary policy decisions. The outcome of the meeting is expected to have significant implications for the global economy and financial markets.