Stock indexes pulled back modestly Tuesday as investors wait to hear from the Federal Reserve, which is beginning a two-day policy meeting on interest rates. Another drop in the price of oil pulled energy stocks to some of the biggest losses in the market. Stocks of smaller companies also took big hits.
KEEPING SCORE: The Standard & Poor’s 500 index fell 12 points, or 0.5 percent, to 2,361 as of 12:39 p.m. Eastern time. The Dow Jones Industrial Average fell 61 points, or 0.3 percent, to 20,821. The Nasdaq composite fell 35 points, or 0.6 percent, to 5,841.
Three stocks fell on the New York Stock Exchange for every one that rose.
ENERGY SLUMP: Energy stocks in the S&P 500 fell 1.4 percent, by far the largest loss among the 11 sectors that make up the index. Marathon Oil fell 69 cents, or 4.3 percent, to $15.16 for one of the largest losses in the S&P 500. Drilling company Transocean fell 35 cents, or 2.8 percent, to $12.26, while oilfield services provider Halliburton lost $1.46, or 2.9 percent, to $49.41.
The price of crude oil has been slumping since late last month, when it was at nearly $55 per barrel. Benchmark U.S. crude oil was trading at $47.38 a barrel Tuesday, down $1.02, or 2.1 percent. Brent crude, which is used to price international oils, dropped 86 cents to $50.49 a barrel in London.
SMALL STOCK PAIN: Smaller companies also sank more than the rest of the market. The Russell 2000 of small-cap stocks lost 1 percent, roughly double the decline of the S&P 500 index of the largest stocks.
Smaller stocks have been some of the biggest winners since November’s election on expectations that President Trump’s “America-first” policies will help the domestic economy, perhaps at the expense of foreign trade. Smaller companies tend to get more of their revenue from U.S. customers than the huge multinational companies in the S&P 500.
A survey released Tuesday showed that optimism among small businesses dipped modestly in February, though it still remains well above where it was before the election.
FED MEETING: When the Fed finishes its meeting on Wednesday, most economists expect it to raise interest rates by a quarter of a percentage point. It would be only the third increase since the Fed slashed rates to a record of nearly zero in 2008 during the financial crisis.
What investors are likely more interested to hear is what Fed Chair Janet Yellen says about the pace of future increases. The job market, stock prices and optimism among shoppers have all picked up momentum in recent months, which raises expectations for more increases.
Inflation has also been picking up, though the recent drop in oil’s price may act as a drag. A report Tuesday showed that prices at the wholesale level rose 0.3 percent last month from January. That’s half of January’s 0.6 percent inflation rate. From a year ago, prices at the wholesale level were up 2.2 percent.
A NEW REACTION: In the past, expectations for higher rates may have spooked stock investors, because more-expensive borrowing can slow the economy. But that’s not happening this time.
“We’re in an environment now where the market is no longer afraid of Fed hikes because the perception now is the Fed is hiking for the right reasons,” said Jon Adams, senior investment strategist at BMO Global Asset Management.
As long as the economy continues to improve and interest-rate hikes are only gradual, analysts say stocks can maintain their lofty heights.
One key risk, Adams said, is that many of the encouraging data points from recent months have come from opinion surveys, such as confidence levels for consumers and purchasing managers. He’d like to see that optimism translate into more action by shoppers and businesses before getting more confident, whether that’s by spending or producing more.
ACKMAN OUT: Valeant Pharmaceuticals fell $1.29, or 10.7 percent, to $10.82 after one of its biggest investors sold its entire stake in the company. Valeant’s stock has tumbled nearly 96 percent since its peak in the summer of 2015 because the company is facing more scrutiny for raising prices on its drugs. Activist investor Bill Ackman’s Pershing Square said Monday it has sold its investment in the company.
HEALTH IMPACT: Health-care stocks held relatively steady overall amid increased expectations that the Republican proposal to overhaul the Affordable Care Act is unlikely to pass in its current form. The sector was down 0.4 percent in afternoon trading.
The nonpartisan Congressional Budget Office said late Monday that the Republican proposal would result in 24 million more uninsured people over a decade, while trimming the federal deficit by $337 billion.
CURRENCIES: The pound fell against the dollar after Parliament gave its prime minister the authority to divorce Britain from the European Union. Scotland’s first minister, meanwhile, called for a referendum to break free of the United Kingdom.
The pound fell to $1.2164 from $1.2231 late Monday. The euro fell to $1.0639 from $1.0660, and the dollar dipped to 114.58 Japanese yen from 114.77 yen.
YIELDS: Bond prices rose. The yield on the 10-year Treasury note fell to 2.59 from 2.63 percent late Monday. The two-year yield held steady at 1.38 percent, and the 30-year yield sank to 3.17 percent from 3.21 percent.
COMMODITIES: Gold rose $2.10 to $1,205.20 per ounce, silver rose a penny to $16.98 per ounce and copper added 2 cents to $2.65 per pound.
MARKETS ABROAD: In Europe, Germany’s DAX index was close to flat, while the U.K.’s FTSE 100 slipped 0.1 percent and the French CAC 40 lost 0.6 percent. In Asia, Japan’s Nikkei 225 index dipped 0.1 percent, South Korea’s Kospi rose 0.8 percent and the Hang Seng in Hong Kong was close to flat.