Wall Street dips as data, Fed meeting keep investors wary

© Reuters. FILE PHOTO: The New York Stock Exchange is pictured in the Manhattan borough of New York City, New York, U.S., April 16, 2021. REUTERS/Carlo Allegri/File Photo

By Medha Singh and David French

(Reuters) - The three benchmark U.S. indices traded lower on Tuesday after the S&P 500 briefly hit another record intraday high, with investor sentiment hit by a strong inflation reading for May as the Federal Reserve sat down for its latest policy meeting.

Assurance from the Fed that rising prices are transitory and falling U.S. Treasury yields have helped ease some concerns over inflation and supported U.S. stocks in recent weeks, with all eyes now on the central bank's statement at the end of its two-day policy meeting on Wednesday.

Data showed an acceleration in producer prices last month as supply chains struggled to meet demand unleashed by the reopening of the economy. A separate report showed U.S. retail sales dropped more than expected in May.

"There is some concern about today's jump in producer prices and the fact that the Fed might have to change its wording to show that it has to become more vigilant regarding inflation," said Sam Stovall, chief investment strategist at CFRA Research.

"The Fed is still going to wait to make any decision regarding tapering. However, there might be some changes in its commentary in tomorrow's decision to show they are not asleep at the wheel."

The Fed is likely to announce in August or September a strategy for reducing its massive bond buying program, but will not start cutting monthly purchases until early next year, a Reuters poll of economists found.

The benchmark S&P 500, the blue-chip Dow Jones and the tech-focused Nasdaq have gained 13%, 12% and 9.2%, respectively so far this year, largely driven by optimism about an economic reopening.

However, the S&P 500 has been broadly stuck within a range, despite recording its 29th record-high finish of 2021 on Monday, versus 33 for all of last year.

Shortly after 2:15 p.m. ET, the Dow Jones Industrial Average fell 66.79 points, or 0.19%, to 34,326.96, the S&P 500 lost 6.51 points, or 0.15%, to 4,248.64 and the Nasdaq Composite dropped 102.64 points, or 0.72%, to 14,071.50.

Seven of the 11 major S&P sectors slipped. Energy stocks added 1.7% as oil prices hit multi-year highs on positive demand outlook. [O/R]

The communication services sector dropped -0.5% after hitting a record high earlier in the session.

In corporate news, Boeing (NYSE:BA) Co was 1.3% higher after the United States and the European Union agreed on a truce in their 17-year conflict over aircraft subsidies involving the planemaker and its rival Airbus.

Having slumped 19% on Monday, Lordstown Motors Corp shares rallied 7.1 intraday after comments from the electric truck manufacturer's president on orders.