U.S. stocks fell Tuesday for the first time in three sessions as investors awaited monetary policy signals from the Federal Reserve later this week.
Here’s where the markets settled by the end of regular trading:
S&P 500 (^GSPC): -0.79%, or 23.13 points
Dow (^DJI): -0.66%, or 173.35 points
Nasdaq (^IXIC): -0.68%, or 54.25 points
10-year Treasury yield (^TNX): -5.3 bps to 1.545%
With a second straight day without major economic data releases coming out of the U.S., traders have turned their attention to this week’s slate of earnings. Meanwhile, market participants also digested conflicting statements from White House officials and President Donald Trump himself over whether the administration was considering a payroll tax cut, which would help increase consumer spending.
Home Depot, Kohl’s earnings
Tuesday morning, Home Depot (HD) reported weaker-than-expected quarterly sales and lowered its top-line guidance for the full year, citing “continued lumber price deflation,” and “potential impacts to the U.S. consumer arising from recently announced tariffs.” The home improvement giant, however, reaffirmed its profit guidance to deliver about $10.03 per share for the full fiscal year.
“We are encouraged by the momentum we are seeing from our strategic investments and believe that the current health of the U.S. consumer and a stable housing environment continue to support our business,” Craig Menear, Home Depot CEO and president, said in a statement.
Shares of the country’s biggest home improvement retailer rose during regular trading, as investors considered the report. In a note Tuesday morning, RBC Capital Markets analyst Scot Ciccarelli called Home Depot’s results “a solid print in today’s environment.”
Meanwhile, Kohl’s (KSS) reported fiscal second-quarter earnings that beat consensus expectations, but sales came up short. Comparable same-store sales – a closely watched metric in retail reports – contracted 2.9% during the quarter, versus a decrease of 2.4% expected.
However, Kohl’s business strengthened as the company progressed through the quarter ending at the beginning of August, driven by a strong start to the back-to-school season, CEO Michelle Gass said in a statement. Gass said she expects upcoming brand launches, program expansions, and increased foot traffic from Kohl’s recently launched Amazon (AMZN) returns program will contribute to performance in the second half of the year.
‘Steady-Eddie rate cuts’
The release of the Federal Reserve’s July meeting minutes Wednesday and public remarks from Fed Chair Jerome Powell Friday remain the focal points of this week.
Ahead of the events, market expectations tilted heavily in favor of a 25 basis point cut to key borrowing costs after the Fed’s September meeting. The probability of such an outcome was pegged at 95% Tuesday morning, having risen from a 75% probability a week ago. The likelihood of a 50 basis point cut for after the September meeting has come down to just 5%, from 25% a week ago.
For the Fed’s October meeting, markets priced in a 73% probability that rates would be 50 basis points lower than they are at present – suggesting traders widely expect a 25-basis point cut to be carried out after each of the next two Fed meetings.
“Increasing confidence that the Fed will embark on a series of steady-Eddie rate cuts has put a temporary floor underneath U.S. stocks,” DataTrek co-founders Nicholas Colas and Jessica Rabe wrote in a report Tuesday. “The bar is therefore quite high for Fed Chair Powell’s Friday comments at the central bank’s annual Jackson Hole conference.”
Stocks sold off after Fed Chair Powell’s most recent press conference in July, with his remarks failing to appease the many investors who had been looking for rhetoric unambiguously signaling further rate reductions.
“Markets think he will be clearer at the end of this week,” Colas and Rabe wrote. “Clearly dovish, that is.”
Concerns over U.S.-China trade relations have served as centerpiece in central bankers’ justifications for easier monetary policy, and a major source of angst among equity traders.
“Equity flows will to a large extent be driven by developments around trade, and hence the market will likely continue to be dominated by market disruptive tweets and announcements related to the trade war,” JPMorgan analyst Marko Kolanovic wrote in a note Tuesday. “Those are likely impossible for anyone outside of policymakers’ inner circle to forecast.”
Overseas, other major central banks have recently dipped deeper into their toolkits to provide support in the face of trade tensions and slowing global economic growth.
The People’s Bank of China on Tuesday rolled out a massive change to its benchmark interest rate system, which many have seen as move aimed at encouraging corporate borrowing, and functioning as an effective rate cut. With this new mechanism, the PBOC will release a Loan Prime Rate every month, which will serve as a reference point to bring companies’ and households’ costs of borrowing in line with rates of open market operations. The new 1-year LPR took effect Tuesday and was set at 4.25%, down 6 basis points from the previous rate.
Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck
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