Tech Drags US Stocks Down as Traders Turn to Fed Meeting

(Bloomberg) — US stocks declined on Tuesday, with technology companies weighing on major indexes as investors remain concerned about the economy ahead of the Federal Reserve’s Wednesday decision. 

The S&P 500 Index fell 1.1%, while the tech-heavy Nasdaq 100 Index declined 1.7%. The blue-chip Dow Jones Industrial Average shed 0.6%.

Among individual movers, Tesla Inc. shares dropped the most among the Magnificent Seven stocks after BYD unveiled a lineup of electric vehicles that it says can charge almost as fast as it takes to refuel a regular car. Sarepta Therapeutics Inc. shares tumbled after the drugmaker said a patient died following the use of the company’s gene therapy, Elevidys, for the treatment of Duchenne muscular dystrophy.

The Fed, on Wednesday, is expected to hold interest rates steady and its quarterly dot plot should give investors more insight into the outlook for the economy. Some investors are hoping that last week’s rapid stock market selloff prompts a Fed put, but Bloomberg economists don’t expect any sort of reassurance at this week’s meeting.

“The Fed likely holds tight here. Fed Chair Jerome Powell has repeatedly said that the risks to price stability and full employment are balanced,” Scott Helfstein, Global X’s head of investment strategy wrote in a note. “That is likely still true, but risks to both are rising. This is not time to sell and go away, but perhaps time to review long-term strategy against near-term volatility.” 

Traders are also monitoring recent developments in the Mideast after Israel launched airstrikes across Gaza, breaking an almost-two-month ceasefire. Meanwhile, Russian President Vladimir Putin is demanding a suspension of all weapons deliveries to Ukraine during a ceasefire proposed by US counterpart Donald Trump. 

To Buy or Not to Buy

Uncertainty over geopolitics and the Fed’s interest-rate decision overshadowed better-than-expected factory output data that eased concern of weakening manufacturing. Other data that released Tuesday showed a rebound in US home construction.

Adding to the market’s dented sentiment, Treasury Secretary Scott Bessent said that while the underlying economy is healthy and there’s no reason for the US to see a recession, he can’t guarantee it. 

Traders continue to be conflicted on whether it’s time to buy the dip. A Bank of America survey shows the biggest-ever drop in US equity allocations, with fund managers reporting a 23% underweight US stocks. Meanwhile, company executives are using the declines to buy US stocks, sending a sign of confidence for equity bulls.

“Because investors’ favorite stocks — and those with a heavy weighting in the index — have suffered so much, it’s likely impacting investor sentiment disproportionately vs. an otherwise more orderly decline,” Bret Kenwell, US investment analyst at eToro wrote in a note to clients. 

Kenwell added that similar levels in sentiment have coincided with at least a short-term bottom in US stocks.

“Although it’s not clear that we’ve seen a capitulatory type move that generally marks the bottom,” he said. 

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