Market Update: Stocks Muted Ahead of Key Fed Rate Decision

Stocks were muted Tuesday as investors looked ahead towards the Federal Reserve's highly anticipated interest rate decision due out Wednesday. The Dow Jones Industrial Average dipped over 15 points, while the S&P 500 Index ticked above the flatline after rising to an intraday all-time high of 5,670.81 and Nasdaq Composite advanced 0.2%.

Here's how the market settled on Tuesday:

S&P 500 Index (NYSE: SPY): +0.03% or +1.49 points to 5,634.58

Dow Jones Industrial Average (NYSE: DIA): -0.04% or -15.90 points to 41,606.18

Nasdaq Composite Index (NASDAQ: QQQ): +0.20% or +35.93 points to 17,628.06

Zoom Out:

Bank of America analyst Rafe Jadrosich wrote in a Tuesday note that investors should pay attention to homebuilder stocks in 2024 as they historically rise ahead of central bank rate cuts.

"Homebuilders outperformed the S&P 500 in the 3-months prior to three of the last five initial rate cuts and building products have outperformed in four of the last five," Jadrosich wrote. "In the last three months, homebuilder stocks have increased +26% and building product stocks are up +13% compared to the S&P 500 up 2%."

"Assuming the Fed starts to cut rates in September, homebuilder and building product stocks will be trading at a higher valuation than going into any of the last five periods when the Fed started to cut," Jadrosich added.

In the News:

Intel (NASDAQ: INTC) shares rose Monday on news the chipmaker plans to turn its foundry business into an independent unit with its own board. This move is part of CEO Pat Gelsinger's turnaround plan for the company, with the new segment having the potential to raise outside capital. Separately, the Biden administration also awarded Intel an additional $3 billion under the CHIPS and Science Act on Monday, adding to its $8.5 billion grant under the same program back in March.

Intel shares are down more than 55% year-to-date as the chipmaker struggles to compete amid the emerging artificial intelligence market. Last month, Intel announced it would cut 15% of its workforce as part of a broader $10 billion cost cutting effort.

On the Economic Front:

U.S. Retail Sales rose at a stronger-than-expected rate in August, the Commerce Department reported Tuesday, showing consumers remain resilient despite concerns over the long-term health of the economy.

Sales increased 0.1% on the month, down from July's upwardly revised gain of 2.3% but ahead of consensus estimates for a decline of 0.2%. Excluding autos, sales also rose 0.1%, coming in slightly below expectations. Meanwhile, spending rose 1.7% of miscellaneous stores and 1.4% for online retailers.

For Wednesday:

Market participants are widely expecting the Fed to issue its first interest rate cut since it started its hiking campaign in March 2022. Traders are currently predicting a 63% chance that policymakers will cut rates by 50 basis points, according to CME Group's FedWatch Tool. All market participants expect the Fed to cut rates by at least 25 basis points. The Fed's current target rate is between 5.25% and 5.50%.