U.S. Investors Trim Positions Ahead of Wednesday’s Fed Minutes

James Hyerczyk

The major U.S. stock indexes closed lower on Tuesday as investors trimmed positions ahead of Wednesday’s release of the minutes of the U.S. Federal Reserve’s monetary policy meeting held on July 30-31. The loss was the first in four sessions and may have been fueled by lingering recession fears too. And for that matter, political concerns over Italy.

In the cash market on Tuesday, the benchmark S&P 500 Index settled at 2900.51, down 23.14 or -0.83%. The blue chip Dow Jones Industrial Average finished at 25962.44, down 173.35 or -0.68% and the technology-based NASDAQ Composite Index ended at 7948.56, down 54.25 or -0.71%.

Earnings and Sectors

Losses may have been limited in the S&P 500 Index and Dow Jones Industrial Average after Home Deport released its earnings report. Shares of the home improvement retailer giant rose 4.4% on better-than-expected earnings. However, the company warned tariffs could hit consumer spending and cut its full-year revenue outlook.

The S&P 500 technology sector and the tech-weighted NASDAQ Composite were pressured by weaker chip stocks, which fell on concerns over U.S.-China trade relations. Micron Technology and Advanced Micro Devices lost 1.7% and 2.4% respectively. Netflix shares dropped 3.4%.

A drop in Treasury yields drove bank shares lower, which weakened the financial sector-weighted S&P 500 and Dow. Citigroup, Bank of America and J.P. Morgan Chase all declined as the benchmark 10-year yield fell about 5 basis points on Tuesday, or 0.05 percentage points, to 1.54%.

White House Sends Mixed Message

Over the week, President Trump and his advisers Larry Kudlow and Peter Navarro attempted to talk down worries over a recession, by highlighting the strength in the U.S. economy. However, investors were hit with some uncertainty after The Washington Post and New York Times both reported the Trump administration was discussing a cut to payroll taxes as a way to mitigate slower economic growth.

Although the White House denied the reports, saying cutting payroll taxes “is not something under consideration at this time.” President Trump threw investors for a loop by saying later on Tuesday that payroll taxes are a matter he had been thinking about.

New Fear Arises

Besides the obvious trade war and recession fears, a new fear may be raising its ugly head. Jim Paulsen, chief investment strategist at The Leuthold Group, said worries over the economy are also arising because of fears that “overused economic policies have become futile.”

“However, maybe the prowess of economic authorities is not nearly as compromised as advertised,” Paulsen said in a note. “Economic policies do not work immediately. They have varied lags before impacting the character of the economy. On average, many economic policies take about one year before their impact is obvious.”

And don’t forget the fear of the self-fulfilling prophecy. Or the false logic, “The yield curve inverted, therefore, we’re going to have a recession” mentality.

This article was originally posted on FX Empire

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