Wall Street slips as Fed policy announcement looms

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(Reuters) – The S&P 500 fell in a choppy session on Tuesday as the index was unable to bounce from a sharp sell-off in the prior session ahead of a key policy statement from the Federal Reserve that will reveal how aggressive the central bank’s policy path will be.

Expectations had largely been predicting the Fed would hike by 50 basis points at the conclusion of its meeting on Wednesday.

However, expectations that a 75 basis point hike was on the table have been growing after Friday’s higher-than-expected consumer price index (CPI) data for May. In addition, a report from the Wall Street Journal on Monday and forecasts from several banks, including JP Morgan and Goldman Sachs (NYSE:GS), signaling a 75 basis point hike have strengthened that belief.

Traders are currently pricing in a 93.2% chance of a 75 basis point hike, up from 3.9% a week ago, according to CME’s FedWatch Tool https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html?redirect=/trading/interest-rates/fed-funds.html.

Data on Wednesday showed that the producer prices index (PPI), while slightly less than expectations on a year-over-year basis for May, remained high as gasoline prices jumped.

“It is certainly where the consensus is moving to, not entirely, but it has been a very quick move from 50 (basis points) to 75, in terms of market sentiment,” said Tim Ghriskey, a senior portfolio strategist at Ingalls & Snyder in New York.

“The Fed may have encouraged that talk and it could even force the Fed’s hand to do it because there would be disappointment now if the Fed didn’t do 75.”

The Dow Jones Industrial Average fell 228.92 points, or 0.75%, to 30,287.82, the S&P 500 lost 22.75 points, or 0.61%, to 3,726.88 and the Nasdaq Composite added 6.57 points, or 0.06%, to 10,815.79.

The benchmark S&P 500 index is on track for its fifth straight daily decline, which would mark its longest losing streak since early January. Monday’s declines put the index down more than 20% from its most recent record high, confirming a bear market began on Jan. 3, according to a commonly used definition.

Among individual stocks, swimming pool supplies distributor Pool (NASDAQ:POOL) Corp slumped 5.64% after Jefferies cut its price target on the stock to $400 from $485.

FedEx Corp (NYSE:FDX) surged 14.12% after raising its quarterly dividend by more than 50%, while Oracle Corp (NYSE:ORCL) gained 9.40% after posting upbeat quarterly results on demand for its cloud products.

Continental Resources (NYSE:CLR) Inc jumped 13.35% after the shale producer received an all-cash buyout offer from its founder Harold Hamm, valuing the company at $25.41 billion.

Declining issues outnumbered advancing ones on the NYSE by a 2.08-to-1 ratio; on Nasdaq, a 1.36-to-1 ratio favored decliners.

The S&P 500 posted 2 new 52-week highs and 71 new lows; the Nasdaq Composite recorded 8 new highs and 584 new lows.

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