The U.S. stock market experienced a sharp downturn on Tuesday, with major technology stocks leading the selloff. This decline comes just a day before the Federal Reserve’s much-anticipated policy decision, which investors are closely watching for insights into the economic outlook. While European stocks posted gains, the American market struggled as investors cut their exposure to riskier assets.
Tech Stocks Face Renewed Selling Pressure
Wall Street’s biggest technology firms saw a significant pullback, with the Nasdaq 100 sliding 1.6% and the S&P 500 falling 1.1%. The Dow Jones Industrial Average also dropped by 0.8%. Notably, Tesla Inc. declined by 4%, while Meta Platforms Inc. became the last of the “Magnificent Seven” tech giants to turn negative for the year. Investors also paid close attention to Nvidia Corp. as its CEO, Jensen Huang, delivered a keynote speech.
The selling pressure in the tech sector reflects broader concerns among investors who have been reducing their holdings of U.S. equities at record levels. According to a recent Bank of America survey, investors have increased their cash positions while pulling back from stock markets. This shift comes as fears mount over a potential economic slowdown and uncertainty surrounding the long-term impact of artificial intelligence investments.
Federal Reserve Decision Looms
Markets are on edge as the Federal Reserve is expected to keep interest rates unchanged in its Wednesday meeting. However, traders and analysts will be scrutinizing the Fed’s updated economic projections and Chair Jerome Powell’s press conference for any hints about the central bank’s future policy direction.
While some investors are hoping for a “Fed put”—a scenario where the central bank intervenes to support falling markets—analysts warn that such expectations may be premature. Lauren Goodwin of New York Life Investments noted that “sticky inflation and higher inflation expectations raise the bar for Fed cuts.” The central bank is likely to require stronger signs of economic deterioration before considering rate reductions.
Historically, significant declines in equity market valuations—around 20% or more—have been a catalyst for Fed intervention. However, given the persistent inflationary pressures, policymakers are expected to maintain their cautious stance for now.
Economic Data Adds to Uncertainty
Investor sentiment was further dampened by recent economic data showing higher-than-expected import prices, which reinforced inflation concerns. Meanwhile, Treasury yields remained relatively stable, with the 10-year yield holding at 4.29%. The U.S. dollar also fluctuated as investors weighed the potential implications of the Fed’s upcoming decision.
Jay Woods of Freedom Capital Markets highlighted that ongoing trade tensions and tariff implementations under the Trump administration have introduced significant uncertainty. Investors are eager to see how these policies influence the Fed’s inflation and growth projections.
Investor Strategies Amid Market Volatility
Despite the recent volatility, some investors are still betting on cyclical stocks over defensive sectors, suggesting that they are not yet positioning for a full-fledged recession. According to Bank of America, its clients recently increased their exposure to cyclical industries, a sign that they still expect economic resilience in the near term.
Bespoke Investment Group strategists also pointed out that last week marked the first “all-or-nothing” trading session of the year, where extreme market movements occur in both directions. Historically, such events have been followed by short-term weakness but longer-term gains, with the S&P 500 showing positive returns three months later in 80% of past instances.
Corporate Developments
In corporate news, Alphabet Inc., Google’s parent company, announced a $32 billion acquisition of cybersecurity firm Wiz Inc. after negotiations stalled last year. Apple Inc. lost its appeal at Germany’s top civil court, which ruled that the company should be subject to tighter antitrust scrutiny. Meanwhile, Sarepta Therapeutics Inc. faced a sharp decline in its stock price after reporting that a young patient treated with its gene therapy died due to acute liver failure.
Conclusion
As investors brace for the Fed’s decision, market sentiment remains fragile, with tech stocks bearing the brunt of the selloff. While some hope for a market rebound, uncertainty over inflation, monetary policy, and trade tensions continues to weigh on equities. The coming days will be crucial as traders assess the Fed’s outlook and its potential impact on financial markets.
