Dow drops nearly 400 points as Fed decision looms over market, Treasury yields jump

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U.S. stocks traded lower early Tuesday as the Federal Reserve prepared to kick off its two-day interest-rate-setting meeting, with a profit warning from Ford Motor Co. the latest example of the supply chain woes still hitting companies.

What’s happening
  • The Dow Jones Industrial Average

    dropped 394 points, or 1.3%, to 30,625.

  • The S&P 500

    was down 49 points, or 1.3%, at 3,850.

  • The Nasdaq Composite

    declined 107 points, or 0.9%, to 11,428.

On Monday, stocks ticked higher at the end of a seesaw session to finish with gains.

What’s driving markets

Monday’s market action was one without conviction, where stocks opened lower yet closed higher on the least volume since Aug. 29.

The next Federal Open Market Committee decision looms over the market, as investors grapple not just with whether the central bank will make a 75 basis point rate hike or lift rates by 100 points, but also how high the Fed will signal rates will go in the future. The meeting starts Tuesday and ends Wednesday.

“Caution should remain the name of the game with investors finding comfort on the sidelines. As the Fed and other major central banks ramp up efforts to contain inflation, fears around a hard landing for their respective economies could leave market players jittery,” said Lukman Otunuga, senior research analyst at FXTM, in a note.

“The lack of appetite for risk amid growth fears could drain equity bulls further, opening the doors for fresh losses across global stock markets,” he said.

Need to Know: There’s only one ‘perfect asset’ to fight all the bad news that could be coming, says this strategist

Meanwhile, Treasury yields, which move opposite to price, continued to march higher, with the rate on the 10-year note

jumping 10 basis points to trade near 3.58% after ending Monday at its highest since 2011. The yield on the 2-year note

continued to press toward the 4% threshold. Rising yields can weigh on stocks, making government bonds appear more attractive relative to riskier assets like equities.

The inflation problems are not limited to the U.S. Sweden’s Riksbank on Tuesday opted for a 100 basis point hike, and analysts expect at least a half-point rise when the Bank of England meets Thursday.

Data showed U.S. housing starts rose 12.2% in August after a revised 10.9% fall in July, while building permits dropped 10% in August.

Companies in focus
  • Ford Motor Co.

    late Monday said inflation and parts shortages will leave it with more unfinished vehicles than expected and that payments to suppliers will be about $1 billion more than expected. Ford did nonetheless reiterate its full-year operating profit outlook. Shares fell 8.6%.

  • Apple Inc.

    announced price rises for the app store in a number of Asian and European countries, likely a response to the surge in the U.S. dollar
    Shares were up 0.1%.

  • Nordstrom Inc.

    shares fell 1.1% after the department store chain said it adopted a shareholder rights plan, also known as a “poison pill,” that is effective immediately and lasts for one year.

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