U.S. equities mostly moved lower on Tuesday as the Federal Reserve started its two-day policy meeting. All eyes are on Wednesday’s policy announcement, where a “no hike” decision is widely expected. But the kicker will be to what extent, if at all, policymakers reduce their four quarter-point hike forecast from December.
Currently, the futures market is only pricing in a single rate hike for the year sometime in the summer.
In the end, the Dow Jones Industrial Average gained 0.1%, the S&P 500 lost 0.2%, the Nasdaq Composite fell 0.5% and the Russell 2000 ended with a 1.6% loss. Treasury bonds were little changed, the dollar was mixed, gold lost 0.9% and crude oil fell 2% to close at $36.44 a barrel.
Technology stocks led the way with a 0.4% gain thanks to a 2% rise in Apple Inc. (NASDAQ:AAPL) followed by defensive utilities and consumer staples (suggesting a touch of risk aversion is in the air). Health care stocks were the laggards, down 1.6%.
After a big gain on Monday, 3D Systems Corporation (NYSE:DDD) fell 12.6% after it was downgraded by analysts at JP Morgan on valuation and revenue concerns. Valeant Pharmaceuticals Intl Inc (NYSE:VRX) fell 50.5% after missing Q4 earnings expectations and issuing weaker-than-expected forward guidance. Biotech stocks fell 3.9%.
Both energy and materials stocks, which have been leading the way out of the Feb. 11 low, were weak as doubts grow about the sustainability of the recent commodity bounce. Industrial metals stocks were hit hard by a few sell-side downgrades in the area.
There was some weakness overnight after the Bank of Japan left its monetary policy unchanged and dampened some of the negative response to negative interest rates unleashed in January — which, in turn, fueled fears that the Japanese are reaching the limit of what cheap money stimulus can do. The policy statement scrapped language that the BoJ would cut rates further into negative territory if needed.
On the economic front, U.S. retail sales disappointed, falling 0.1% in February over January. January was downwardly revised to a 0.4% decline. Core retail sales were flat, missing expectations for a 0.2% rise. Producer price inflation fell more than expected on the drag from energy prices. Core PPI remained flat.
Technically, stocks look very vulnerable here as the Dow contends with epic, two-year downtrend resistance amid Fed policy risks and an increase in selling pressure over the past week. Breadth was negative on Tuesday, with decliners outpacing advancers by 1,099 on the New York Stock Exchange.
As a result, I have recommended by Edge subscribers move to cash while Edge Pro subscribers are focusing on a couple of short-side play including the April $57.50 American Express Company (NYSE:AXP) puts.
Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. A two-week and four-week free trial offer has been extended to InvestorPlace readers.
