Wall Street Close: Indexes take a step back into the Fed’s showdown

• The Dow Jones Industrial Average ended down 205 points, or 0.8%.
• The S&P 500 fell 0.7%.
• The Nasdaq Composite dropped 1.3%.

After spending most of the session just below the break-even line, US stocks dipped on Tuesday, weighed by a number of factors.

Investors took to the sidelines due to a combination of mounting uncertainties surrounding the Federal Reserve’s economic outlook, a wild-card earnings season, down-to-the-wire stimulus negotiations and the looming spectre of historically awful Gross Domestic Product data.

All three major stock indexes finished lower, extending their fall late in the session. The Dow Jones Industrial Average ended down 205 points, or 0.8%. The S&P 500 fell 0.7%, the Nasdaq Composite dropped 1.3%.

Market participants have a lot to digest this week and today their risk appetite was dampened.

Fed in focus

The Fed wraps up its two-day meeting tomorrow. The Federal Reserve plans to extend several stimulus packages as it now expects a slower economic recovery as COVID-19 remains a major barrier to getting the US economy back on track, analysts at ANZ explained.

 An extension to the end of the year (from September) has been granted to several packages, designed to keep credit flowing.

These extensions don’t cover the expanded unemployment benefit which is due to expire this week, but a new aid package is currently being negotiated in Congress to extend these benefits and a further round of direct payments to Americans and more loans for small businesses is also being considered.

The current proposal would see the additional payments to unemployed cut from USD600 per week to USD200 in order to encourage more back to work.

Further support is also being considered for small businesses and an incentive to manufacture personal protection equipment in the US is also on the table as this would reduce US’s reliance on sourcing this equipment from China.

Investors are also keeping an eye on the coronavirus case numbers and progress on the international race for a vaccine.

On the bright side, drugmakers Moderna (ticker: MRNA) and Pfizer (PFE) each announced their coronavirus vaccine candidates have entered late-stage trials.

However, plunging consumer expectations have been reflecting anxiety over a pick-up in Covid-19 cases, the reversal of reopening strategies and worries over the financial implications of the conclusion of the $600 a week Federal unemployment payment.

Senate Republicans on Monday released their $1 trillion stimulus package and the negotiations with Democratic lawmakers will be key for markets into the final stretch.

S&P 500 index levels