Stocks - Wall Street Slides as Hopes Fade Fed Will Go for Big Rate Cut

Investing.com - Stocks fell back Tuesday as investors became more certain the Federal Reserve will only enact a modest rate cut at its July meeting. In addition, unease grew about the prospects for a meeting between President Donald Trump and China President Xi Jinping

The S&P 500 fell 0.95%. The Nasdaq Composite dropped 1.51% and the Dow Jones industrials dropped 0.67%. The day's declines were the third straight for the S&P 500 and the Nasdaq and second in three days for the Dow.

The market was modestly lower when both Fed Chairman Jerome Powell and St. Louis Federal Reserve Bank President James Bullard gave speeches and acknowledged rates might need to be cut to sustain the economic recovery. But Bullard disappointed when he suggested a rate cut would not be 50 basis points (a half-percentage point), which is what more bullish investors have been betting on and the president would like.

Investing.com's Fed Rate Monitor Tool expects the Fed to trim its key federal funds rate to 2% to 2.25% from 2.25% to 2.5% now at its July meeting. The speeches will probably amplify the president's criticism of the Fed and of Powell in particular. There's talk the president might replace Powell as chairman, although Powell's actual term as a Fed governor would go on. (The legality of such a move is not entirely clear.)

Trump's meeting with President Ji also carries risks for markets. If the United State and China can't resolve their trade disputes, the trade war will go on and unsettle markets.

In addition to the political tensions, profit-taking seemed to hit the market, with tech stocks hit the hardest.

Microsoft (NASDAQ:MSFT) was the biggest laggard among Dow stocks and third-worst among Nasdaq 100 stocks, in part because it has been one of the top Dow performers this year. There were analysts suggesting the software giant's Azure cloud business might not be a profitable as Amazon's (NASDAQ:AMZN) Web Services business.

But Amazon fell on Tuesday, as did Apple (NASDAQ:AAPL), Google parent Alphabet (NASDAQ:GOOGL), Adobe Systems (NASDAQ:ADBE), Facebook (NASDAQ:FB) and Cisco Systems (NASDAQ:CSCO). The Nasdaq 100 fell 1.70%.

Where there was strength was in very defensive stocks. McDonald’s (NYSE:MCD), Procter & Gamble (NYSE:PG) and Travelers (NYSE:TRV) hit 52-week highs.

Metals and crude oil were mostly steady. The August contract for gold settled at $1,418.70 an ounce in New York and even traded as high as $1,442.90. WTI futures were off just 7 cents to $57.83.

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