Stocks fall a second day on U.S.-China tensions, hawkish comments from Fed leaders

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Markets fall as investors weigh U.S.-China tensions
Markets fall as investors weigh U.S.-China tensions

Stocks slumped on Tuesday as investors weighed increased tensions between the U.S. and China with House Speaker Nancy Pelosi's Taiwan visit and reacted to comments from Federal Reserve presidents about the central bank's path forward.

The S&P 500 slipped 0.67% to 4,091.19 after being down nearly 1% earlier in the session. The benchmark had earlier climbed off of lows as Pelosi's plane landed safely in Taiwan Tuesday morning. The Dow Jones Industrial Average also shed 402.23 points, or 1.23%, to 32,396.17. Caterpillar weighed on the 30-stock index and shares slid after the company posted disappointing quarterly earnings. The Nasdaq Composite fell 0.16% to 12,348.76, even though Uber jumped 18.9% following earnings.

Stocks wavered early in the afternoon, reacting to multiple comments from regional Fed presidents who all threw cold water on the idea that the central bank will be done raising rates or move them lower anytime soon.

Chicago Fed President Charles Evans said that he hopes the central bank can raise its benchmark interest rate by half a percentage point in September and then continue with quarter-point hikes until the start of the second quarter in 2023. San Francisco Fed President Mary Daly said that the central bank still has work ahead to combat inflation.

Pelosi's planned Taiwan visit has created less market anxiety than expected, says Mohamed El-Erian
Pelosi's planned Taiwan visit has created less market anxiety than expected, says Mohamed El-Erian

Later, Loretta Mester, president of the Cleveland Fed, said that several more months of evidence that inflation has peaked will be needed before the central bank ends its rate hike cycle.

In political news, Pelosi is expected to spend the night in Taiwan, Reuters reported. Leading up to the trip, Chinese officials threatened to act if Pelosi moved forward with the visit. Pelosi is the most senior U.S. official to meet with Taiwan leaders on the island since former House Speaker Newt Gingrich visited in 1997.

"I do think the trip will not lead to any real economic disruption, but of course the rhetoric and the headlines start to intensify and it's something we need to watch going forward," said Mona Mahajan, Edward Jones senior investment strategist, on CNBC's "Squawk Box" Tuesday. "Geopolitical tension has been a theme we've really been seeing all year that has been weighing on markets."

Traders are also looking ahead to another raft of earnings from companies such as Starbucks, PayPal and Advanced Micro Devices on Tuesday after the bell. On the economic data front, investors this week are awaiting the July nonfarm payrolls report slated for release Friday for further clues into the state of the economy and the job market.

Lea la cobertura del mercado de hoy en español aquí.

Best trades on CNBC Tuesday: Uber shares pop after quarterly results. Here’s what the pros say

Uber, AMD, and Starbucks are some of today's stocks: Pro Market Movers August 2
Uber, AMD, and Starbucks are some of today's stocks: Pro Market Movers August 2

Uber caught market pros' attention after shares popped on the ride-sharing app's quarterly results. The company posted a big second-quarter loss, but managed to defy expectations on revenue. Shares ended the day 19% higher.

-Christina Falso, Darla Mercado

All three major averages fall Tuesday for second day in a row


The S&P 500, Dow Jones Industrial Average and the Nasdaq Composite slumped Tuesday, unable to hold onto earlier gains.

The S&P 500 slipped 0.67% to 4,091.19 after being down nearly 1% earlier in the session. The Dow Jones Industrial Average also shed 402.23 points, or 1.23%, to 32,396.17. The Nasdaq Composite fell 0.16% to 12,348.76, even though Uber jumped 18.9% following earnings.

— Carmen Reinicke

Caterpillar, Boeing lead Dow to the downside

The Dow is lagging the S&P 500 and Nasdaq in Tuesday's session, and most of the stocks in the 30-name average are in the red.

The worst performers in the Dow come from the industrials sector. Shares of Caterpillar are down more than 5% after the company's second-quarter revenues came in below expectations, while Boeing has dropped nearly 3%.

Elsewhere, Shares of Visa are down more than 2%, as are shares of Intel.

Insurance stock Travelers is the only Dow name up at least 1%.

—Jesse Pound

Stocks mixed in last hour of trading

An hour before the closing bell, stocks were mixed with the S&P 500 and Dow Jones Industrial Average down 0.31% and 0.89%, respectively.

The Nasdaq Composite was still in the green, however, up 0.20%, boosted by Uber's more than 18% jump following earnings.

— Carmen Reinicke

ETF flows showed big pivot to growth in July

Last month's rally for growth stocks was due in part to a historic divide in ETF flows, according to Strategas ETF strategist Todd Sohn.

"Notably, the monthly spread between Growth inflows and Value outflows was the largest in our dataset history," Sohn wrote in a note to clients on Tuesday. The data goes back to 2009.

In particular, the iShares Russell 1000 Value ETF saw roughly $800 million in outflows last month, according to Strategas.

However, value has still attracted more flows than growth since March 2020, thanks to massive flows earlier this year, according to Strategas.

— Jesse Pound

Fed officials trying to cool market's rally, analyst says

Federal Reserve officials appear to be downplaying the chances of a Fed pivot in their comments this week, according to John Luke Tyner, a portfolio manager and fixed income analyst at Aptus Capital Advisors.

Tyner said that Fed speakers, including San Francisco Fed President Mary Daly earlier today, are "probably trying to walk back the move that we've seen in risk assets."

"When you have this rebound in risk assets that we've seen, really what that's telling me is the Fed has done nowhere enough damage to make the mark that they need to slow down inflation," Tyner said.

He also pointed to an increase in the 5-year breakeven inflation metrics as an area that would likely concern the Fed.

— Jesse Pound

Citi raises Tesla's price target

Citi raised Tesla's price target, to $424 from $375, citing some better-than-expected second quarter earnings results, as well as easing commodity costs for automakers. Still, the investment firm maintained a sell rating on the electric vehicle maker.

"We are moderately raising our estimates to reflect the Q2 EPS beat on continued strong execution and non-automotive upside," analyst Itay Michaeli wrote in a Monday note.

Automakers have been forced to raise prices on vehicles as they deal with a surge in commodities costs for materials such as cobalt, lithium and nickel, which have more than doubled during the pandemic.

Still, Tesla CEO Elon Musk wrote in a July 28 tweet: "Inflation might be trending down. More Tesla commodity prices are trending down than up fwiw."

Tesla shares were up more than 1%.

— Sarah Min

Mester sees 'more work to do' on controlling inflation

Cleveland Fed President Loretta Mester takes part in a panel convened to speak about the health of the U.S. economy in New York November 18, 2015.
Lucas Jackson | Reuters

Cleveland Federal Reserve President Loretta Mester said more progress is needed on inflation before the central bank can relax.

In an interview with the Washington Post, the policymaker said there's "more work to do" on inflation, which is running at its highest level since the early 1980s. She added that she would need to see "compelling evidence" that inflation is slowing on a month-over-month basis, and would look for not only a peak but also signs that the cost of living is moving lower.

Her comments come the same day as fellow regional Fed presidents Mary Daly of San Francisco and Charles Evans of Chicago said they also think there are more hikes ahead. Evans tempered his remarks with hopes that the Fed may not have to go to extremely restrictive policy to control inflation.

—Jeff Cox

The 10-year yield traded in a wide range Tuesday, and may have found a near-term bottom

The 10-year Treasury yield traded in a large, volatile range Tuesday, and possibly has found a near-term bottom, strategists say. 

The yield was at 2.71% in afternoon trading, coming off a low of 2.52% at about 8:30 a.m. ET, according to Wells Fargo's Michael Schumacher. "For me, looking out over the next few months, to the end of September, I think yields are a fair amount higher than they are today," he said. Yields move opposite price.

"I think it probably has bottomed," he said, noting the yield could return to the year high of 3.49%.

Greg Faranello of AmeriVet Securities said separate comments Tuesday from San Francisco Fed President Mary Daly; Chicago Fed President Charles Evans, and Cleveland Fed President Loretta Mester all reinforced a hawkish tone. That helped yields move higher, as did a report that House Speaker Nancy Pelosi's plane landed safely in Taiwan earlier today.

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"There's been a little bit of geopolitical nervousness," said Faranello. He said Fed officials are pushing back on the view of some investors that the Fed will soon pivot from its hiking policies.

"Even Daly, who is a bit of a dove, says we're nowhere near done," he said. "The Fed speak has been 110% unequivocally bearish. There's not even a doubt in my mind."

--Patti Domm

Household debt hits record $16.2 trillion amid inflation burst

Household debt passed $16 trillion for the first time as Americans paid more for autos and real estate and increasingly used credit cards for their purchases, the New York Federal Reserve reported Tuesday.

Total debt rose $312 billion, most of which came from a $207 billion increase in mortgage debt. The total American IOU across all forms rose to $16.15 trillion, a 2% increase.

Credit card balances rose the most in more than 20 years over the past 12 months, while non-housing credit balances showed their biggest quarterly gain since 2016.

The increases come amid surging inflation and as the Fed raises rates, which makes all forms of debt, particularly mortgages, more expensive.

—Jeff Cox

Lots of bad news already discounted, MRB Partners says

Stocks have rallied off their June lows even as strong inflation persists, economic growth slows and the Federal Reserve continues to raise rates.

One reason for that may be that the market has already priced in much of the bad news out there, according to research firm MRB Partners.

"After de-rating dramatically in the first-half of this year, many investors fear that a significant decline in corporate profits looms, signaling much more pain ahead for stock prices," MRB said in a note Tuesday.

"That said, from our perspective of a mid/late-cycle slowdown, stocks prices have discounted a lot of bad news," they said. "Our comparatively constructive economic outlook implies that the selloff in equities and other risk assets is somewhat overdone and there is room for a partial re-rating, provided interest rate expectations and bond yields remain calm for a period."

They also noted that the Fed will not "sacrifice the U.S. expansion for the sake of achieving a specific inflation rate at a specific time."

Fred Imbert

Chicago Fed President Evans hopes for smaller rate hikes in coming meetings

Chicago Federal Reserve Bank President Charles Evans on Tuesday said he thinks the central bank could hand out smaller interest rate increases in coming meetings if inflation continues to tick down.

He hopes that the Fed can proceed with a half-percentage point hike in September, he told reporters Tuesday. Following that move, he'd like to see the central bank hand out a series of quarter-percentage-point increases until the start of the second quarter next year.

Overall, he said that he thinks the Fed will have to raise rates between 3.75% and 4% by the end of the year.

— Carmen Reinicke

Stocks midday: S&P 500, Nasdaq Positive, Dow slips

Stocks were mixed in midday trading. At about 12:30 p.m. ET, the S&P 500 was up 0.4%, having ga