The S&P 500 and Dow Jones were subdued on Tuesday as optimism over potential rate cuts from the Federal Reserve next year waned, with investors on tenterhooks ahead of more commentary from central bank officials.
After a stellar rally last week driven by tumbling Treasury yields, equities have lost momentum in recent days as investors await commentary by Fed policymakers for any signs of a pushback against expectations that U.S. interest rates have peaked.
Federal Reserve Bank of Minneapolis President Neel Kashkari doused hopes of early rate cuts, saying the central bank may have to do more to bring inflation back down to its 2% target.
Chicago Fed chief Austan Goolsbee acknowledged the downward trend in inflation but maintained price pressures are not yet over.
"We will be higher for longer. We think that the first rate cut will take place not in the second quarter of next year, but in the third quarter of next year," said Sam Stovall, chief investment strategist of CFRA Research.
Further pressuring stocks, U.S. Treasury yields rebounded from multi-week lows in the previous session, ahead of large bond auctions this week that could determine whether there is enough demand for U.S. government debt.
The benchmark ten-year Treasury yield was last at 4.5955%, slightly lower than Monday's level.
Market participants will parse commentary from Fed Board Governor Christopher Waller and New York Fed President John Williams later on Tuesday for more clues on the central bank's interest rate path. Fed Chair Jerome Powell's remarks will grab the spotlight on Wednesday.
Uncertainty about the timing of potential rate cuts and some dismal corporate forecasts for the fourth quarter have cast a doubt on whether there could be a year-end rally for stocks.
"History tells us that Q4 has always been positive. If we don't get an advance toward the end of the year, then that implies that investors believe that something worse is likely to occur in the coming calendar year," Stovall said.
Among the 11 major S&P 500 sectors, energy (.SPNY) led declines tracking a 2% fall in crude prices on mixed economic data from China.
At 9:39 a.m. ET, the Dow Jones Industrial Average (.DJI) was down 53.13 points, or 0.16%, at 34,042.73, the S&P 500 (.SPX) was down 9.47 points, or 0.22%, at 4,356.51, and the Nasdaq Composite (.IXIC) was up 3.47 points, or 0.03%, at 13,522.25.
Uber Technologies(UBER.N) fell 1.9% as the ride-hailing firm missed Wall Street's profit target for the July-September period.
Cushioning the tech-heavy Nasdaq (.IXIC), Datadog(DDOG.O) surged 25.0% on beating estimates for third-quarter results and raising its forecast for annual adjusted profit and revenue.
Other cloud firms including Mongodb (MDB.O) and Snowflake (SNOW.N) also added 11.0% and 8.1% respectively.
Declining issues outnumbered advancers for a 2.30-to-1 ratio on the NYSE and for a 1.55-to-1 ratio on the Nasdaq.
The S&P index recorded three new 52-week highs and no new low, while the Nasdaq recorded 12 new highs and 48 new lows.
