Wall Street in the red: Investors await Fed interest rate decision

On Tuesday, the important indices on Wall Street will follow on from the previous day's development. Meanwhile, government bond yields only know one direction: upwards.

Dusseldorf. The day before the next interest rate decision by the US Federal Reserve (Fed), investors sell their positions, repeating the losses of the previous day.

The US standard value index Dow Jones is down 0.8 percent at 52,022 points.

The broader S&P 500 is down 0.5 percent at 7,585 points.

The technology-heavy Nasdaq Composite moved down 0.8 percent to 25,989 points.

The Nasdaq 100, a reflection of the 100 non-financial companies with the highest market capitalization, is down 0.6 percent at 28,955 points.

The US central bankers' interest rate decision is particularly important this time. According to the Fed watch tool CME, market observers now almost unanimously assume that the Federal Reserve will raise key interest rates. Inflation remained at 3.4 percent in August for the year, as the responsible statistics office announced last week. Core inflation, which is particularly relevant for the Fed, also remains at an elevated level. It was 2.4 percent.

According to Markus Koch, Wall Street has prepared for the US Federal Reserve to raise interest rates. What will be crucial is what signals Fed Chairman Kevin Warsh sends on Wednesday about future interest rates and balance sheet policy, says the stock market expert.

Experts had expected the figures to be that way, but expectations of an interest rate increase were nevertheless confirmed. Before the inflation data was announced, around 70 percent expected interest rates to rise, while 30 percent expected no change. Since the data became public, expectations of a rate hike have risen to over 90 percent.

The Fed has a dual mandate and strives for full employment in addition to stable prices. The labor market was robust in August, with more jobs created than expected. This development also supports an interest rate increase.

US President Trump, however, called for an interest rate cut after the publication of the labor market report for August last week. “Lower interest rates or I’ll stop trading with countries we have a deficit with,” Trump wrote on his Truth Social platform. “High interest rates put the USA at a very unfair disadvantage, I won’t allow that!”

Analysts see the interest rate move as already priced in on the markets. They only expect developments on the markets if Fed Chairman Kevin Warsh also provides signals for further interest rate policy. “The key for the markets will be whether Warsh presents the move as a one-off adjustment or whether it signals further tightening due to ongoing inflation,” writes Daniela Hathorn, senior market analyst at Capital.com. However, that is unlikely. Warsh has so far been rather cautious about making statements about its long-term interest rate policy.

An additional factor in this debate: Oil prices rose back above $100 after the latest attacks in the Middle East. On Tuesday, the benchmark crude for Europe, Brent, was at $105 a barrel for delivery in November. In September, the price of this type of oil rose by 18 percent. This means that the price of oil is still far from its highest level since the start of the war against Iran at over $120 per barrel. However, experts expect a further increase. “Oil remains central to the interest rate debate,” concludes Hathorn.

In contrast to previous phases of the war, this time not only is the important Strait of Hormuz impassable, but the alternative route for Saudi Arabia, which was increasingly used during the war, is no longer an option. On the one hand, the pipeline in the Saudi port of Yanbu was damaged, and on the other hand, the Yemeni Houthis have joined the war and are threatening the trade route that connects Saudi Arabia with the Red Sea.

Meanwhile, US government bond yields continue to rise. High inflation and interest rate expectations are putting pressure on bond prices. At its peak, the yield on the ten-year US bond climbed to 5.04 percent on Tuesday, its highest level in 19 years.

The supply of corporate and government bonds has also increased recently. A large-scale US government buyback - a move by US Treasury Secretary Scott Bessent to push yields back down - had little effect. Concerns about the U.S.'s long-term fiscal stance are also weighing on returns.

Another development had an impact on the US stock exchanges on Monday: Warnings from the heads of artificial intelligence (AI) providers such as Anthropic and OpenAI triggered significant price losses in AI stocks on Wall Street and other stock exchanges on Monday. Several leaders had called for AI developments to be slowed down to ensure the security of the systems.

The technology-heavy Nasdaq was up to 1.3 percent lower during the day. The US chip manufacturers lost, in some cases significantly. However, this has not yet resulted in a major downward trend. On Tuesday, many of the stocks were slightly higher. The Nasdaq index was initially unchanged, but later fell 0.6 percent.

Chip stocks: The papers from Intel, ARM Holdings, AMD and Marvell Technology are all up slightly after the partly high losses of the previous day.

Coca-Cola: Coca-Cola wants to invest ten billion dollars in its home market by 2030. The sum should be spent on the company itself and its bottling partners, said CFO John Murphy. The number also includes projects that have already been announced in several US states. The share lost 0.4 percent.

Skyworks Solutions: The specialized semiconductor manufacturer is an important supplier to Apple and has been growing for several days. Apple recently introduced its new foldable iPhone. Additionally, CEO Phil Brace recently announced that a $22 billion merger with Qorvo is nearing final regulatory approval. The share gained 12.4 percent on Tuesday. It has increased by a third since mid-July.