S&P 500 Snaps 3-Day Win Streak as Fed Meeting Gets Underway

© Reuters.

By Yasin Ebrahim

AiVIF.com – The S&P 500 snapped a three-day winning streak Tuesday after hitting an intraday record even as some on Wall Street suggest that the Federal Reserve is unlikely to spring a hawkish surprise.

The S&P 500 fell 0.2%, after hitting an intraday record high of 4,257.19. The Dow Jones Industrial Average was down 0.27%, or 93 points, and the Nasdaq Composite was down 0.71%.

The Federal Reserve's two-day meeting is expected to culminate Wednesday in an unchanged decision on interest rates and monthly bond purchases. But fresh clues on the central bank's thinking on inflation and views on the tapering its bond-buying program appear to be keeping traders on edge.

Fears of a hawkish surprise were exacerbated by data showing wholesale inflation jumped to record levels, just a week after consumer prices rose to their highest level since 2008. But some are warning against betting that the Fed will act too early.

"The market is probably overreacting,… it could be a mistake to think the Fed is going to act too early," Peter Duffy, chief investment officer of credit at Penn Capital Management said in an interview with AiVIF.com on Tuesday.  "We believe the Fed will be patient as it is aiming for [sustainable] inflation ... what we're seeing now is obvious inflation [given] the pandemic last year."

"The question is, what will inflation look like in 2022? I think the Fed is going to be very patient to see that play out," he added.

Others agree, pointing to the Fed's commitment to provide clear signaling before making a move on monetary policy.

The Federal Open Market Committee has "indicated it will first offer ample notice to the market before beginning the taper conversation and furthermore give ample warning before formally announcing intentions to taper, a process which itself will take quite some time," Stifel said.

Data on Tuesday, meanwhile, showing that consumer spending, the backbone of the economy, fell in May was largely downplayed by economists, who continue to suggest the recovery remains robust.

"Despite the modest pullback in goods spending, retail sales ex-restaurants are still 20%+ above pre-pandemic levels. We believe this excess demand is the main source of inflationary pressures which are likely to persist," Jefferies (NYSE:JEF) said in a note.

Tech, the leading sector in Monday's record day for the broader market, was the biggest decliner, with the Fab 5 in the red.

Google-parent Alphabet (NASDAQ:GOOGL), Microsoft (NASDAQ:MSFT), Apple (NASDAQ:AAPL),  Amazon.com (NASDAQ:AMZN) and Facebook (NASDAQ:FB) were lower.

The day of red for tech proved positive for value stocks on the ongoing rotation from value to growth and vice versa resumed.

Energy led the move higher in cyclicals as oil prices continued to trend near multiple-year highs on expectations for strong energy demand over the summer as easing restrictions boosts travel demand.

In industrials, Boeing (NYSE:BA) was in the spotlight after the U.S. and EU agreed on a five-year truce over aircraft subsidies involving Boeing and European rival Airbus.

In other news, DraftKings (NASDAQ:DKNG) fell 4% after Hindenburg Research revealed that it had a short position against the stock.