Stocks slumped on Tuesday as investors weighed increased tensions between the U.S. and China with House Speaker Nancy Pelosi’s Taiwan visit and reacted to comments from Federal Reserve Presidents about the central bank’s path forward.
The S&P 500 slipped 0.66% to 4,091.35 after being down nearly 1% earlier in the session. The benchmark had earlier climbed off of lows as Pelosi’s plane landed safely in Taiwan Tuesday morning. The Dow Jones Industrial Average also shed 401.64 points, or 0.90%, to 32,396.76, weighed down by Caterpillar, which shed more than 3% after reporting disappointing quarterly earnings. The Nasdaq Composite fell 0.16% to12,348.76, even though Uber jumped 18.9% following earnings.
Stocks wavered early in the afternoon, reacting to multiple comments from regional Fed Presidents who all threw cold water on the idea that the Fed will be done raising rates, or move them lower anytime soon.
Chicago Fed President Charles Evans said that he hopes the central bank can hike its benchmark interest rate by half a percentage point in September and then continue with quarter-point hikes until the start of the second quarter in 2023. San Francisco Fed President Mary Daly said that the central bank still has work ahead to combat inflation.
Later, Loretta Mester, president of the Cleveland Fed, said that several more months of evidence that inflation has peaked is needed before the Fed ends its rate hike cycle.
Pelosi is expected to spend the night in Taiwan, Reuters reported. Leading up to the trip, Chinese officials threatened to act if Pelosi moved forward with the visit. Pelosi is the most senior U.S. official to meet with Taiwan leaders on the island since former House Speaker Newt Gingrich visited in 1997.
“I do think the trip will not lead to any real economic disruption, but of course the rhetoric and the headlines start to intensify and it’s something we need to watch going forward,” said Mona Mahajan, Edward Jones senior investment strategist, on CNBC’s “Squawk Box” Tuesday. “Geopolitical tension has been a theme we’ve really been seeing all year that has been weighing on markets.”
Traders are also looking ahead to another raft of earnings from companies such as Starbucks, PayPal and Advanced Micro Devices on Tuesday after the bell. On the economic data front, investors this week are awaiting the July nonfarm payrolls report slated for release Friday for further clues into the state of the economy and the job market.