Dow Jones Drops 0.40% as Traders Await Fed Rate Cut

On the morning of September 16, U.S. stocks turned lower, with the Dow Jones Industrial Average falling over 180 points. Traders are awaiting the latest decision from the Federal Reserve. The market anticipates a 100% probability of a 25 basis point rate cut. U.S. retail sales grew by 0.6% in August, exceeding expectations.

The Dow Jones Industrial Average fell 185.39 points, or 0.40%, to 45,698.06. The Nasdaq Composite Index fell 12.43 points, or 0.06%, to 22,336.32. The S&P 500 Index fell 6.86 points, or 0.10%, to 6,608.42.

Oracle's stock price surged after reports indicated that the company had joined an alliance that would allow the social media platform TikTok to continue operating in the U.S. On Monday, the S&P 500 Index closed above 6,600 points for the first time, and the Nasdaq Composite Index hit a new all-time high.

Investors were pleased with the positive descriptions of the progress in U.S.-China trade talks by the U.S. President. Several large technology stocks provided upward momentum for the market, with Alphabet and Tesla rising over 4% and 3%, respectively.

Traders are preparing for the Federal Reserve's rate-setting meeting, which begins on Tuesday and will announce its decision on Wednesday. According to the CME's FedWatch tool, the probability of at least a 25 basis point rate cut is 100%. This would mark the beginning of a new round of policy easing, expected to continue until 2026. Market enthusiasm is primarily driven by the significant profit potential brought by artificial intelligence, leading the rebound after the "liberation day" led by rate-sensitive technology stocks.

Investors will also closely monitor the subsequent press conference by Federal Reserve Chairman Powell for any clues about the future of monetary policy. Before this meeting, the U.S. Senate confirmed Stephen Miran, nominated by the U.S. President, to join the Federal Reserve.

Investors will also focus on economic data to be released on Tuesday, including retail sales, import prices, the housing market, and business inventories. In August, U.S. retail sales excluding automobiles rose 0.7% from the previous month, higher than the estimated 0.4%. The range of estimates from 67 economists was 0% to 0.5%. August retail sales reached 732 billion dollars. Excluding automobile dealers, building materials, and gas stations, August retail sales rose 0.7% from the previous month. The "control group" of U.S. retail sales, which excludes food services, automobile dealers, building materials, and gas station sales, rose 0.7% from the previous month.

In August, U.S. import prices rose 0.3% from the previous month, contrary to the estimated decline of 0.2%. The U.S. Bureau of Labor Statistics reported that import prices rose 0.3% in August, following a 0.2% increase in the previous month. The median estimate from 28 economists was a 0.2% decline, with a range of -0.7% to +0.5%. August import prices were unchanged from a year earlier. Import prices, excluding oil, rose 0.2% from the previous month, unchanged from July. Export prices rose 0.3% for the second consecutive month, up 3.4% from a year earlier.

There is a higher probability of a hawkish surprise from the Federal Reserve. The Federal Reserve is set to begin a two-day policy meeting later in the day, with expectations of a 25 basis point rate cut to be announced on Wednesday. This would be the first dovish policy decision of the year, following data indicating a weakening U.S. job market. Some traders believe there is a possibility of a 50 basis point rate cut.

If the Federal Reserve were to cut rates by 50 basis points, it could be interpreted as a sign that the situation is worse than anticipated, such as a slowing job market or some unnoticed economic data anomalies. This situation could be interpreted in different ways, as current market sentiment could quickly reverse. The market has priced in a total of 127 basis points of rate cuts by July 2026, meaning the Federal Reserve has a higher threshold to maintain investor optimism.

Investors are also concerned about potential political interference with the Federal Reserve's independence. The U.S. Senate has confirmed Stephen Miran, nominated by the U.S. President, to serve on the Federal Reserve Board. The appeals court ruled that the U.S. President cannot fire Lisa Cook, who will also attend the meeting. Both events are considered unlikely to affect the Federal Reserve's decision on Wednesday, as the market has fully priced in a 25 basis point rate cut.

In this eventful week, the Bank of Canada is expected to cut rates by 25 basis points, while the Bank of Japan and the Bank of England are expected to keep rates unchanged.