Stocks break AI-driven rally; Powell’s caution tempers U.S. yields

NEW YORK – Wall Street stock indexes broke a three-day string of artificial intelligence-fueled records on Tuesday, and US Treasury yields slid after Federal Reserve Chair Jerome Powell indicated a cautious approach to the next US interest rate decision.

The central bank head offered few hints as to when the Fed might repeat last week’s move to cut interest rates, and emphasized how delicate the balance is between balancing the threat of inflation and signs of weakness in the labor market.

Tech stocks closed down after posting record closing highs in each of the last three sessions. Nvidia’s shares fell 2.8% the day after the chipmaker shook up markets and reached its own record high stock price on plans to invest in OpenAI.

The Nasdaq Composite led declines, falling 0.95%. The Dow Jones Industrial Average fell 0.19%, and the S&P 500 fell 0.55%.

The market is digesting the fact that the economy has shown resilience, but data has been inconsistent, “and is now dipping to more of a slowdown,” said Oliver Pursche, senior vice president at Wealthspire Advisors in New York.

“With this being the third year of double-digit returns for the S&P 500, there needs to be another strong catalyst to move stocks materially higher. And right now, it is not clear what that catalyst can be,” Pursche said.

Shares in Amazon, Microsoft, and Apple were also lower.

MSCI’s gauge of stocks in 49 countries fell 0.3%.

Investors’ antennas had been up for signals from Powell on future rate cuts. After his speech on Tuesday, they fractionally shifted their expectations of a 25 basis point cut in October to 94% chance, from 89.8% on Monday. CME’s Fedwatch tool now indicates a 5.9% chance of a pause.

YIELDS DOWN, GOLD SOARS

Treasury yields, which influence borrowing costs, declined.

The yield on benchmark US 10-year notes fell 3.9 basis points to 4.106%, from 4.145% late on Monday. It had hit its highest level since September 5 during that session.

The 2-year bond yield, which typically moves in step with expectations for rate moves from the Fed, fell 1.3 basis points to 3.588%, from 3.601% late on Monday.

Gold basked in its safe-haven status to hit record highs, with the spot price last quoted up 0.47% to USD 3,763.82 an ounce.

Chris Weston, head of research at broker Pepperstone, said investors were hedging their exposure to stocks by buying gold.

Global equities have been supported by expectations of further Fed rate cuts after it eased policy last week.

“The markets are sanguine in this ‘everything rally,’ awaiting more evidence that further Fed easing will steer the economy away from any hard landings,” BNY head of markets macro strategy Bob Savage said in a note.

Markets have stayed dovish despite mixed messaging from the Fed itself.

Before the chair’s speech, Vice Chair for Supervision Michelle Bowman largely dismissed inflation risks and said rates may need to come down faster to support the labor market.

New Fed Governor Stephen Miran called for sharp rate cuts on Monday, while three colleagues urged caution on inflation.

The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, was little changed at 97.24.

Oil settled up more than USD 1 a barrel after a deal to resume exports from Iraq’s Kurdistan stalled. This reduced some concerns about oversupply.

(Reporting by Isla Binnie in New York, Tom Wilson in London and Wayne Cole in Sydney; Editing by Nick Zieminski and Stephen Coates)