Market Snapshot: Stocks tick mostly lower as investors await more clarity on Fed rate-cut plans

U.S. stocks traded mostly lower Tuesday putting the Dow Jones Industrial Average and S&P 500 index on pace for a third-straight losing session for Wall Street on Tuesday, as investors grew wary of equities ahead of key testimony from Federal Reserve Chairman starting Wednesday.

What are major indexes doing?

The Dow Jones Industrial Average DJIA, -0.26%  fell 79 points, or 0.3%, to 26,726, while the S&P 500 index SPX, -0.03% dropped 2 points, or 0.1%, to 2,974. The Nasdaq Composite Index COMP, +0.39% meanwhile added 26 points, or 0.3%, to 8,125.

Need to Know: Weaker growth will offset a Fed rate cut — so sell stocks, warns Morgan Stanley

What’s driving the market?

Investors appear less willing to hold stocks and other perceived riskier assets as they wait for two-day testimony before Congress by Fed Chairman Jerome Powell due to start Wednesday. Markets are hoping the central bank’s chief will shed some light on a meeting of the central bank’s interest-rate setting committee, slated for July 30-31, with investors clinging to hopes for a rate cut.

Expectations for interest-rate reductions have been scaled back since last week’s strong June jobs report, though a quarter-point reduction at the Fed’s meeting at the end of the month is still seen by market participants as virtually certain.

“A cut in July will be difficult to dodge given current market pricing but Powell may use the opportunity to manage expectations beyond the meeting,” said Craig Erlam, senior market analyst at OANDA, in a note to clients. “How successful he’ll be is another thing as investors don’t appear to want to hear it and may instead continue to apply the pressure going into the September meeting.”

Read: Could the Fed surprise the stock market by skipping a July rate cut? It’s not out of the question

On Tuesday, Powell gave opening remarks at a conference at 8:45 a.m. Eastern Time to discuss recent stress tests for banks but made no comment on montary policy. Vice Chairman Randal Quarles will speak at that same conference at 2 p.m. Eastern Time Monday. St. Louis Fed President Jim Bullard and Atlanta Fed President Raphael Bostic also made appearances elsewhere Tuesday.

Trade policy concerns may also be weighing on market sentiment, after the US announced new preliminary tariffs on certain steel imports from Mexico and China, pending an investigation into subsides, with a final decision due in November.

The United States and China are set to relaunch trade talks this week after a two-month hiatus, but a year after their trade war began there is little sign their differences have narrowed. White House economic adviser Larry Kudlow said Washington was still waiting for China to make good on what he called a “very, very important” pledge to quickly buy more agricultural products, but said there was no firm deadline for such purchases, or for finalizing an overall deal.

Meanwhile, a diplomatic dispute between Japan and South Korea, which has led to Japan imposing new export restrictions on three materials used in the production of advanced consumer electronics, appears to be worsening after comments Tuesday from South Korean Industry Minister Sung Yun-mo suggested the country will soon impose countermeasures, according to Reuters.

The dispute could lead to added disruption in the global supply of smartphone and chips, analysts say.

“Japan’s decision to restrict exports on fluorinated polyimide, resist polymers and hydrogen fluoride is starting to resonate with the South Korean technology sector,” wrote Michael O’Rourke chief market strategist at JonesTrading, in a note, adding that Japan controls 80%-90% of these markets. “There is concern that the restrictions will hurt Samsung and Hynix’s chip production. The concern extends to US tech companies, which may see delays to the products they have manufactured in or parts sourced from South Korea.”

On the economic data front, the National Federation of Independent Business released its small business optimism index, which fell to 103.3 in June, from 105 in May. The decline follows gains in the previous four months, and remains above the historical average.

The number of U.S. job openings fell slightly to 7.32 million in May, though near record highs, while the share of workers who voluntarily left their jobs also ticked slightly lower to 2.5% from a postrecession peak of 2.6%.

Which stocks are in focus?

Shares of beverage maker PepsiCo Inc. PEP, -1.32%  fell 1.1% Tuesday, even after reporting second-quarter results that topped expectations and affirming its full-year outlook.

Shares of Piper Jaffray Co. PJC, -2.61%   could be in focus, after a report in the Wall Street Journal that the firm is nearing a deal to buy Sandler O’Neill + Partners LP for $485 million in cash and stock. Piper stock fell 1.5% Tuesday.

Etsy, Inc. ETSY, +4.16%   announced its intention Tuesday to offer free shipping for customers with orders of at least $35. Shares were up 4%.

Shares of Netflix Inc. NFLX, +1.12%   rose 0.4% Tuesday, after Raymond James reiterated its bullish call on the streaming video giant citing the record start for the new “Stranger Things” season.

How are other markets trading?

The yield on the 10-year U.S. Treasury TMUBMUSD10Y, +0.08%   note has edged up roughly 2 basis points, to 2.057%.

In Asia overnight, stocks struggled, and the Hang Seng HSI, -0.76%  led decliners with a drop of 0.7%. European stocks SXXP, -0.51%  were under pressure, closing down 0.5%, led by a 0.9% drop for the German DAX 30 index DAX, -0.85%  

In commodities markets, oil prices CLQ19, +0.29%   moved higher, while gold prices GCQ19, +0.04% fell 0.1%. The U.S. dollar DXY, +0.10% was higher, notably against the British pound GBPUSD, -0.4234%

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