Tuesday July 9th

9-07-2019

Dow falls for a third day as investors wait for clues on Fed policy, 3M shares lead decline

Stocks fell on Tuesday as investors awaited more clues on the Federal Reserve’s next monetary policy move. The Dow Jones Industrial Average dropped 118 points at the open and head for its third straight decline. The S&P 500 pulled back 0.3% while the Nasdaq Composite declined 0.4%. Shares of 3M pressured the Dow. The stock fell more than 1% after an analyst at RBC Capital Markets downgraded it to sector perform from outperform amid worries over the macro economic environment and overhang from litigation. Fed Chair Jerome Powell is scheduled to testify in front of the House Financial Services Committee on Wednesday. This comes just after a stronger-than-expected jobs report raised questions about the central bank’s rate policy. Investors will be looking for clues on whether the Fed will cut rates later this month, as it is widely expected, or if the central bank thinks the economy is strong enough to maintain current economic policy. Traders had priced in a 100% probability of a Fed rate cut in July, according to the CME Group’s FedWatch tool. Expectations for a more aggressive cut were tempered, however, following the stronger-than-expected monthly jobs data released on Friday. “While Jay Powell is rightly a big focus tomorrow, we know the bond market is already pricing in about a 100% chance of a cut in a few weeks,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group, in a note. “So he either just confirms what has already been priced in or he really disappoints people by pulling it back.” “If Powell is truly data dependent he would be smart not to pre-commit to anything past the July meeting,” Boockvar said. Expectations for lower rates boosted stocks to a record high last week. They also sent the major indexes surging in June. The S&P 500 rallied 6.9% in June while the Dow and Nasdaq jumped more than 7% each. The recent rise in stocks comes as China and the U.S. agreed to hold off on slapping additional tariffs on each other’s goods and restart trade talks. Both sides are scheduled to resume negotiations this week. In corporate news, PepsiCo shares rose 1% after reporting better-than-expected earnings. Levi Strauss is scheduled to report quarterly numbers after the bell. Asia Pacific stocks mostly declined on Tuesday amid dampened expectations on the Fed cutting rates this month. Mainland China shares mostly continued to fall after losses on Monday. The Shanghai composite edged down 0.18% to close at 2,928.23, while the Shenzhen component declined 0.14% to finish at 9,198.78. The Shenzhen composite rose 0.21% to close at 1,558.11. Hong Kong’s Hang Seng index fell 0.68% in its final hour of trade. In Japan, the Nikkei 225 rose 0.14% to close at 21,565.15, while the Kospi in South Korea tumbled 0.59% to close at 2,052.03. Oil rose towards $65 a barrel on Tuesday as OPEC supply cuts and Middle East tensions outweighed the U.S.-China trade dispute that has been dragging down the global economy and oil demand. OPEC and its allies led by Russia agreed last week to extend their supply-cutting deal until March 2020. Brent has risen almost 20% in 2019 supported by the pact and also tensions in the Middle East, especially concerns about the row over Iran’s nuclear program. Brent crude, the global benchmark, rose 33 cents to $64.44 a barrel. U.S. West Texas Intermediate crude was up 26 cents to $57.92. Gold eased to a one-week low on Tuesday, consolidating below $1,400 as the dollar rallied on expectations of a less dovish U.S. Federal Reserve ahead of testimony from the chairman of the central bank. Spot gold was 0.5% lower at $1,387.80 per ounce, having earlier touched $1,386.11, its lowest since July 2. U.S. gold futures for August delivery shed 0.7% to $1,389.50.