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Stock Futures Fall; Market Awaits Fed Meeting

Stock index futures were lower Tuesday ahead of the Federal Open Market Committee (FOMC) meeting, which market watchers expect will lead to new measures to ease monetary policy.

Futures added to losses after the latest survey from the National Federation of Independent Business showed continued pessimism about the future, and the Labor Department reported U.S. non-farm productivity fellin the second quarter for the first time in 1 1/2 years. Economists had expected a modest increase. Labor costs barely rose.

Also weighing on the market is a report from China that July imports were weaker than expected. The data shows the Chinese domestic economy is still struggling, adding weakness to the global economy. The news triggered a plunge in European and Asian stock markets.

Over the past weeks, officials and analysts have called for the Federal Reserve to engage in a second bout of asset buying in order to stimulate the still-weak economy and the decision is expected Tuesday at 2:15 p.m New York time.

Some market watchers said investors are now adjusting their expectations to a more modest episode of easing, if any.

The San Francisco Fed said Monday in its economic letter that the probability that the US economy will slip back into recession over the next two years is higher than that of economic expansion.

Investors had been positioning for significant easing from the Fed but now they are adjusting their bets, Christopher Middleton, chief executive at Atlantic Equities, told CNBC.com.

"The market is reassessing expectations for significant easing – they may be priming for some disappointment," Middleton said.

European shares fell and Asian stocks closed lower.

Coming out of a good overall earnings season in the U.S., investors are now reassessing the macroeconomic picture and stocks may drift lower, he added.

"I wouldn't be surprised to see the S&P (500 index) come back in the short term," Middleton added.

The markets are overbought, Christoph Riniker, head of strategy research at Julius Baer, told CNBC.com.

"When you look at the current market, we're at the top of the trading range," Riniker said, adding the S&P has a resistance level at around 1,130 points.

Some bad economic data out of the US, especially the worse-than-forecast jobs report last Friday, is making Fed officials worry less about inflation and more about the economy, various analysts said.

But the central bank faces a delicate balancing act, according to Middleton.

"Were they to announce significant easing, that may signal that the FOMC is worried about the economy," he said. "Were they not to do anything, the market wouldn't like that either."

In corporate news, Kohlberg Kravis Roberts , one of the world's biggest private equity companies, canceled plans for a $500 million public offering, without elaborating on the reason for its decision.