U.S. stocks were slightly lower Wednesday, pausing their recent surge as investors looked ahead to the latest commentary from the Federal Reserve and next round of trade talks.
The Dow Jones Industrial Average inched down 60 points, or 0.2%, to 25827. The S&P 500 also edged 0.2% lower. The benchmark equity gauge has rebounded 13% this year, pulling within about 3.5% of last September’s all-time high. The tech-heavy Nasdaq Composite fell 0.1%.
Signals from the Fed that it will pause interest-rate increases early this year and unveil a plan to wind down its balance-sheet runoff program have renewed faith the U.S. economy, buoying markets. The central bank is expected to leave rates unchanged Wednesday and could indicate they are comfortable holding them steady for a while.
At the same time, optimism about U.S.-China trade talks has given many investors hope that an agreement could stabilize stagnant economic growth outside the U.S. Negotiators from both countries have scheduled a new round of trade talks in Beijing and Washington starting next week and are aiming to close a deal by late April, The Wall Street Journal reported Tuesday.
With stocks closing in on last year’s peaks, some analysts expect markets to stay in their current range until investors get more clarity on how trade policy might impact the earnings and economic backdrop moving forward.
“The algorithmic trading has been highly correlated to news on trade, so if you wanted to point to a fundamental driver of this, a lot of it is hope for a trade deal,” said Liz Ann Sonders, chief investment strategist at Charles Schwab , adding that markets are already pricing in good news from the talks.
Some analysts also expect caution from the Fed and stimulus efforts from the European Central Bank to help support global growth moving forward. FedEx shares fell 5.2% after the shipping company cut its outlook for the second consecutive quarter and said weaker global trade trends continue to harm its international shipping business.
Despite slowing economic growth, some investors hope strength in the U.S. consumer will underpin revenue gains for large companies in 2019. General Mills shares rose 2.5% following the packaged-food maker’s upbeat profit forecast, a sign the company’s price increases are helping lift performance.
The mixed earnings and economic backdrop is making it tough for market watchers to determine how much longer the 2019 recovery can continue. The uncertainty comes with S&P 500 profit growth expected to slow this year as the impact of the Trump administration’s tax policies fades.
“At the same time you saw an administration provide all this fiscal stimulus, they basically offset it by launching a trade war,” Ms. Sonders said. “So we’re in uncharted territory in trying to gauge the impact it’s going to have on earnings, the economy, on animal spirits and confidence.”
Stocks and bonds have rallied in tandem lately following a stretch of uneven economic data, an unusual development because bond prices usually fall when major indexes surge, signaling heightened economic confidence and risk appetite.
On Wednesday, the yield on the benchmark 10-year U.S. Treasury note fell to 2.596%, according to Tradeweb, from 2.614% Tuesday. Bond yields fall as prices rise.
Elsewhere, the Stoxx Europe 600 fell 0.6%. Anxiety about the U.K.’s exit from the European Union has loomed over European markets recently. The British pound fell against the dollar Wednesday after the U.K. asked the EU to delay its departure from the bloc until June 30, an extension that if approved would give Prime Minister Theresa May just months to break an impasse in Parliament over her withdrawal deal.
In Asia, Hong Kong’s Hang Seng Index fell 0.5%, while Japan’s Nikkei Stock Average inched up 0.2%.