All three main equity indexes gapped down at the open and showed red at the close with less than 24 hours before the Federal Open Market Committee is expected to announce its third interest rate cut since September.
Whether it's the last move in the U.S. central bank's rate-cutting cycle is weighing on investors and traders, even as broadly mixed data continue to show a generally healthy domestic economy.
The FOMC will announce its decision on Wednesday at 2 pm. Fed Chair Jerome Powell's press conference is scheduled for 2:30 pm. Follow along as we track developments before and after the meeting on our live Fed blog.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
An interest rate cut seems certain, writes Nick Timiraos in The Wall Street Journal, but "inside the central bank, the case for continued reductions will be less clear-cut if the economy continues to chug along."
Timiraos says a rate cut on Wednesday could mark the end of one phase of a two-phase rate-cutting process and concludes based on recent communication from officials that the Fed "will deliver a much more cautious tone about further cuts."
The Dow Jones Industrial Average closed lower for the ninth consecutive session – the first time that's happened since 1978 – declining 0.6% to 43,449. The S&P 500 was down 0.4.% to 6,050. And the Nasdaq Composite shed 0.3% to 20,109.
Incoming data and the FOMC
The Census Bureau reported before Tuesday's opening bell that advance data show retail sales grew more than forecast in November, rising 0.7% vs a Wall Street estimate of 0.6%. And October retail sales growth was revised upward on further review, from 0.4% to 0.5%.
"November retail activity was solid as consumers have plenty of spending power from higher incomes, rising portfolio values, and stable financial footing," writes LPL Financial Chief Economist Jeffrey Roach. "This report will likely add to the Fed’s debate about the policy path for 2025. Unless the labor market materially weakens, investors should expect the Fed to ease rates next year but not as much as originally hoped."
At the same time, the Fed reported that industrial production was down 0.1% in November vs Wall Street expectations of 0.3% output growth, and October's contraction was revised from 0.3% to 0.4%. Capacity utilization declined from a downwardly revised 77.0% in October to 76.8% in November.
"The data show a mixed picture of the consumer and producer economy," writes BMO Capital Markets Chief U.S. Economist Scott Anderson. Recent retail sales data underscore "the current strength and resilience of the economic expansion." Says Anderson, "While it won’t stop the Fed from cutting interest rates this week, it will keep market expectations around the extent and pace of rate cuts next year up in the air."
According to the CME Group's Fed Watch Tool, 30-day federal funds rate futures prices still show a 95.4% probability the central bank will cut by 25 basis points tomorrow. That's down from 98.2% on Monday. Indeed, the money flow is toward the FOMC staying put tomorrow and at its January meeting.
The probability of no rate cut right on Wednesday is still low, but it's up to 4.6% from 1.8% yesterday. And futures prices show the probability of a fed funds target range of 4.50% to 4.75% following next month's FOMC meeting is up to 3.9% from 1.5%.
Apple and Tesla are on the move
Apple (AAPL) recently reclaimed the title of biggest publicly traded company in the world on the strength of a 54.5% rally off its April 19 52-week low of $164.08.
AAPL stock now has a market capitalization of $3.828 trillion and has established a solid lead in the race to $4 trillion. J.P. Morgan analyst Samik Chatterjee says AAPL has room to run even if its artificial intelligence initiatives don't provide a meaningful revenue lift.
"The bull case without AI hinges on healthy revenue and earnings growth led by Services revenue growth and margins with limited further downside on iPhone volumes and an intact premium valuation while investors await datapoints around consumer traction for AI features," Chatterjee writes.
AAPL was up 1% on Tuesday to $253.48. Chatterjee has an Overweight rating on AAPL and a 12-month price target of $265, implying 4.5% upside from the iPhone stock's most recent closing price.
Tesla (TSLA) continues to enjoy its extended post-election rally and is now up 90.8% since Donald Trump reclaimed the White House with his November 5 victory.
On Sunday, Dan Ives of Wedbush boosted his 12-month price target for TSLA from $400 to $515. Ives also laid out a "bull case" that ends with TSLA stock at $650. "We believe the Trump White House the next four years will be a 'total game changer' for the autonomous and AI story for Tesla and Musk over the coming years," Ives writes.
On Monday, Vijay Rakesh of Mizuho Securities raised his rating on TSLA stock from Hold to Buy and matched Ives with a $515 price target, up from $230. Rakesh also articulated his own bull scenario where Tesla sees "significant growth acceleration" into 2030 based on development of its Full-Self Driving system, robotaxis and humanoid robots, helped by "favorable regulation."
TSLA was up 3.6% on Tuesday and has added about $732.9 billion to its market cap since November 5, growing from $807.1 billion to $1.54 trillion.
Related content
- The Best Industrial Stocks to Buy
- How Selling a Losing Stock Position Can Lower Your Tax Bill
- How to Buy Treasury Bills
-
The 'Go Live Your Life' Rule of Retirement SpendingThe 'guardrails approach' to retirement spending signals when you can spend more and when you need to rein it in, giving you greater flexibility in your post-work life.
-
Targa Resources, Take-Two Interactive, Boston Scientific: Why Experts Rate These Stocks at Strong BuyWall Street is highly bullish on these three high-quality stocks.
-
Targa Resources, Take-Two Interactive, Boston Scientific: Why Experts Rate These Stocks at Strong Buy
Wall Street is highly bullish on these three high-quality stocks.
-
Debunking Three Myths About Defined Outcome ETFs (aka Buffered ETFs)Defined outcome ETFs offer a middle ground between traditional equity and fixed-income investments, helping provide downside protection and upside participation.
-
This Is Why Judge Judy Says Details Are Important in Contracts: This Contract Had HolesA couple's disastrous experience with reclaimed wood flooring led to safety hazards and a lesson in the critical importance of detailed contracts.
-
US-China Trade Hopes Send Stocks to New Highs: Stock Market TodayApple and Microsoft are on track to join Nvidia in the $4 trillion market cap club.
-
A Lesson From the School of Rock (and a Financial Adviser) as the Markets Go Around and AroundIt's hard to hold your nerve during a downturn, but next time the markets take a tumble, remember this quick rock 'n' roll tutorial and aim to stay invested.
-
I'm a Financial Pro: This Is How You Can Guide Your Heirs Through the Great Wealth TransferFocus on creating a clear estate plan, communicating your wishes early to avoid family conflict, leaving an ethical will with your values and wisdom and preparing them practically and emotionally.
-
To Reap the Full Benefits of Tax-Loss Harvesting, Consider This Investment Strategist's StepsTax-loss harvesting can offer more advantages for investors than tax relief. Over the long term, it can potentially help you maintain a robust portfolio and build wealth.
-
Social Security Wisdom From a Financial Adviser Receiving Benefits HimselfYou don't know what you don't know, and with Social Security, that can be a costly problem for retirees — one that can last a lifetime.
