Wall Street Pulls Back from Record Highs as Fed Signals Policy Uncertainty

U.S. stocks ended lower on Tuesday, retreating from record highs as weakness in megacap technology shares weighed on sentiment. The S&P 500 fell 0.55%, the Dow Jones slipped 0.19%, and the Nasdaq 100 dropped 0.73%. Futures also pointed lower, with December E-mini S&P down 0.54% and Nasdaq E-minis down 0.70%.

The decline followed cautious remarks from Federal Reserve Chair Jerome Powell, who refrained from signaling support for a rate cut at the upcoming FOMC meeting. Powell noted that inflation risks remain tilted to the upside while employment risks lean to the downside, highlighting the “no risk-free path” for monetary policy.

Despite the selloff, lower bond yields provided some support as the 10-year Treasury yield eased 3 basis points to 4.12%. Energy stocks also rallied after WTI crude rose more than 1%.

On the data front, the Q2 current account deficit narrowed to $251.3 billion, better than expected. However, the September S&P manufacturing PMI slipped to 52.0, and the Richmond Fed survey unexpectedly fell to -17, signaling softer manufacturing activity.

Fed officials struck mixed tones, with Governor Michelle Bowman calling for proactive action to address weakening labor markets, while Chicago Fed President Austan Goolsbee described policy as only “mildly restrictive.”

Meanwhile, corporate earnings expectations are improving, with S&P 500 companies forecast to deliver 6.9% growth in Q3, the strongest outlook in months.

Looking ahead, investors will watch upcoming U.S. economic data, including new home sales, GDP, unemployment claims, capital goods orders, and Friday’s core PCE price index — the Fed’s preferred inflation gauge.