U.S. stocks experienced a downturn on Tuesday as investors anticipated testimony from Federal Reserve Chairman Jerome Powell and reacted to escalating global trade tensions. Cleveland Federal Reserve President Beth Hammack indicated that interest rates might not decrease in the near future, citing persistent inflation as a primary concern. Concurrently, Treasury Secretary Scott Bessent announced that the White House would refrain from pressuring the Federal Reserve to lower its benchmark borrowing rate, opting instead to focus on reducing the 10-year Treasury yield through deregulation and spending cuts.
Powell is scheduled to testify before the Senate Banking Committee at 10 a.m. ET on Tuesday and will appear before the House Financial Services Committee at 10 a.m. ET on Wednesday. Investors are keenly awaiting his insights, especially in light of President Donald Trump's recent implementation of new tariffs on all steel and aluminum imports to the United States. The European Union has responded by threatening retaliatory levies if the U.S. extends tariffs to products from the bloc.
The Dow Jones Industrial Average dropped 106 points, or 0.2%, shortly after markets opened on Tuesday. Similarly, the S&P 500 and Nasdaq Composite both dipped by 0.2%. This market reaction underscores investor anxiety over Powell's upcoming testimony and potential ramifications of heightened trade tensions.
Beth Hammack, commenting on the current economic landscape, stated:
"We have made good progress, but 2 percent inflation is not in sight just yet. As long as the labor market remains healthy, I am looking for broad-based evidence that inflation is sustainably returning to 2 percent before adjusting policy further."
Treasury Secretary Scott Bessent emphasized that controlling inflation remains a priority for the administration. Instead of seeking immediate rate cuts, the focus will be on strategic deregulation and spending reductions.
Despite this backdrop, the stock market exhibited notable movements within individual sectors. Coca-Cola shares surged by 3.3% after surpassing quarterly earnings and revenue expectations. In contrast, Fluence Energy shares plummeted by 38% following disappointing first-quarter earnings.
The technology sector demonstrated resilience with Lattice Semiconductor shares jumping approximately 12% after outperforming revenue forecasts for the fourth quarter. Similarly, First Solar shares have seen an 8% increase over the past year.
Market analyst Mark Newton remarked on the current volatility:
"This remains a choppy market for US Equities in the near term as part of a stellar ongoing intermediate-term uptrend, which has shown no evidence of deterioration despite any of the recent DeepSeek and/or Tariff-related volatility spikes."
Fred Imbert added perspective on market sentiment regarding tariffs:
"Despite the positive recovery in Technology lately, the broader market continues to lag, and indices like Equal-weighted S&P 500, DJ Transportation Avg., and Russell 2000 remain well off highs hit last December. However, sentiment regarding tariffs and their possible negative implications for the US Stock market has gotten quite bearish for both the Equity and Bond markets in recent weeks, which I believe is a positive."
Economic indicators remain in focus as the latest consumer price index report is set for release on Wednesday, followed by the producer price index on Thursday. These reports will provide further insights into inflation trends and economic conditions.
Ian Lyngen highlighted uncertainties surrounding tariff impacts:
"Not only is it difficult to estimate the true impact of the new tariffs already announced, but it is even more challenging to project the fallout from what additional levies might be coming in the near-term."
Powell's testimony is expected to shed light on whether recent price increases due to tariffs will influence future monetary policy decisions. Lyngen speculated on market expectations:
"We suspect that the most the market could ask from the chair is for clarity on whether the type of one-off price increases created by Trump's levies thus far will translate into any response by the FOMC."