The Dow closed lower Tuesday, pressured by energy stocks as investors paused their bullish bets on stocks ahead of the Federal Reserve chairman Jerome Powell’s testimony before Congress due Wednesday.
The Dow Jones Industrial Average fell 0.7%, or 245 points, the Nasdaq fell 0.2%, and the S&P 500 fell 0.5%.
All Eyes on Fed Chairman Powell
Testimony from Federal Reserve Chairman Jerome Powell this week – before the House Financial Services Committee and the Senate Banking Committee on Wednesday and Thursday, respectively – will be closely watched for clues on how strongly the chief stresses the need to resume rate hikes following a pause last week.
“The key question (and risk for stocks) is whether Fed attempts to jawbone the market re-iterating ‘higher for longer’ policy rates (i.e another 50bp of additional hikes in 2023, as per dot plots) – especially given that rate expectations have not nudged higher post the FOMC,” Nomura said in a recent note.
But while the Fed chief is unlikely to offer fresh clues on future monetary policy, many expect him as well as other Fed officials due to speak this week to point to still high inflation and reiterate the need to resume hiking rates.
“The Fed needs that wiggle room to be able to put the brakes back on the economy with higher interest rates to slow consumer spending, if needed,” Banríon Capital Management Chief Investment Strategist Victoria Bills told Investing.com’s Yasin Ebrahim in an interview on Tuesday. “I think Powell is building in a little cushion to make for a soft landing for the economy, hopefully, by the end of the year.”
Value Stocks in Slumber
Energy stocks were the biggest drag on the broader market, pressured by a stumble in oil prices as China, the biggest crude importer, resurfaced.
CNPC’s Economics and Technology Research Institute senior oil researcher Wang Lining forecast China oil demand to grow 3.5% to 740 million tons in 2023, down from a prior forecast of 5.1%.
Exxon Mobil Corp (NYSE:XOM), Chevron Corp (NYSE:CVX), and Halliburton Company (NYSE:HAL) led the selling in energy.
Other value sectors of the market including financials were also in the red as Goldman Sachs Group Inc (NYSE:GS) slipped 2% after forecasting weaker China economic growth.
Intel Slip Pressures Semiconductor Stocks
In tech, meanwhile, chip stocks continued to take a breather from a recent melt-up, paced by a 4% decline in Intel (NASDAQ:INTC) as the chipmaker said it would invest more than €30B (€1 = $1.0915) to build two semiconductor facilities in Germany.
The wobble in tech comes as some on Wall Street call for further profit taking in the sector, which is now overbought territory.
“In the near-term call effectively remains unchanged at this time, with extended chart conditions (the NDXand SPX specifically) likely to influence further profit-taking over the coming days/weeks,” Janney Montgomery Scott said in a note.
Rivian Hooks Up Customers to Tesla Chargers
In other news, Rivian Automotive (NASDAQ:RIVN) struck an agreement with Tesla (NASDAQ:TSLA) to allow its customers to use the latter’s charging network in 2024, sending its shares more than 5% higher.
U.S. Housing Activity Springs Positive Surprise
On the economic front, Housing Starts jumped 21% to 1.6M in May, the fastest pace of starts since April 2022, and well ahead of expectations for a 0.8% decline to 1.4M.
Activity in the housing sector has been muted for so long that it is reasonable to expect a rebound at some point, but there are reasons to doubt the spike this month.
The upside surprise was downplayed by “dubious” strength in the Midwest, Jefferies said, and “favorable weather conditions following tornado activity that generated some rebuilding projects.”