Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., March 29, 2023.
Brendan Mcdermid | Reuters
Stocks fell sharply Tuesday, led lower by declines in bank shares, as traders braced for the latest Federal Reserve policy announcement.
The Dow Jones Industrial Average fell 458 points, or 1.3%. The S&P 500 also slid 1.3%, and the Nasdaq Composite dropped 1%.
Small and large banks fell, as traders questioned the future of some regional financial institutions after the crisis that engulfed Wall Street in March. Regional banks PacWest and Western Alliance had trading paused after tumbling more than 20%.
Meanwhile, JPMorgan Chase's shares shed 1%, giving back some of its gains from the previous session. A day earlier, JPMorgan shares rose after the takeover of embattled regional First Republic Bank. Other large banks including Goldman Sachs, Bank of America and Citigroup also dropped more more than 2.5%.
The Fed's two-day policy meeting, which kicked off Tuesday, is expected to conclude with the central bank announcing another 25 basis-point rate hike. Per the CME Group's FedWatch tool, traders are pricing in 97% chance of a rate hike. Investors will be looking for clues on whether the Fed will keep rates steady after this meeting, or if it will further tighten monetary policy to fight inflation.
"We think it will be the last rate hike of this tightening cycle," wrote Joe Kalish, chief global macro strategist at Ned Davis Research. "The Fed, however, will want to preserve its optionality — just in case the economic data doesn't come in as expected before the next FOMC meeting on June 13-14."
Weighing on sentiment Tuesday was word from Treasury that the country may hit the debt ceiling sooner than expected. Treasury Secretary Janet Yellen warned that the U.S. may run out of measures to pay its debts as early as June 1, earlier than the late July deadline Goldman was estimating.
Elsewhere, fresh numbers from the Job Openings and Labor Turnover Survey for March showed signs of a loosening job market. Employment openings hit their lowest levels since April 2021. Orders for manufactured goods in March grew 0.9%, falling below expectations of a 1.3% increase.
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